Diesel price may be freed if inflation falls

February 21st, 2011 - 9:04 pm ICT by IANS  

New Delhi, Feb 21 (IANS) India is likely to deregulate diesel prices once general inflation level falls to 6 percent, C. Rangarajan, chairman of the economic advisory council to the prime minister, said Monday. “I think 6 percent inflation is a good level to deregulate diesel price,” Rangarajan told reporters here after releasing the economic review for fiscal 2010-11.

Fixation of petrol price was freed from government control in June last year. However, deregulation of diesel price is a politically hot potato as it accounts for nearly a third of the country’s fuel consumption and affects the prices of essential commodities.

Diesel prices have not been raised in the last several months despite a sharp increase in international crude oil prices.

Rangarajan, a former governor of the Reserve Bank of India, said headline inflation was likely to come down to 7 percent by the end of March on moderating food prices.

Annual inflation based on wholesale prices eased marginally to 8.23 percent in January as against 8.43 percent in the previous month.

“We have witnessed two years of high inflation. It has been around 7-8 percent. It needs to be brought down to a comfortable level of 4-5 percent,” said Rangarajan adding the policy markers would continue to tighten monetary and fiscal policy until inflation was brought down to a comfortable level.

“Inflation distorts the economy. It hits the poor hardest. We have to bring it down,” he added.

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