'No freeing of diesel prices till inflation remains high'

The Prime Minister's Economic Advisory Council (PMEAC) today said the government would wait for inflationary pressure to calm down before freeing the diesel prices.

"Perhaps they (the government) would do it (deregulate diesel prices) at a time when inflation has shown much stronger tendency to decline. That would be the most appropriate time to do the deregulation with respect to diesel," PMEAC Chairman C Rangarajan told reporters on the sidelines of the NIPFP lecture here.

He further added: "I believe if crude oil prices remain at a very high level the government would be forced to take some important policy decisions. This could mean deregulation of diesel prices."

The ongoing political turmoil in parts of Middle East and North Africa has raised international crude prices to above USD 100 per barrel, resulting in huge burden for state-run Indian oil firms.

The government had last year deregulated petrol prices but had put off doing the same with diesel prices.

Asked about current account deficit (CAD), Rangarajan said: "I believe capital flows would be large enough to cover current account deficit. I don't see any immediate problem on that score."

In its mid-quarterly policy review today, the RBI said that going by the recent robust export performance, CAD for 2010-11 is now estimated to come lower than earlier expected, at around 2.5% of GDP.

"I believe that capital flows will be reasonable and adequate enough to cover the deficit next year also," Rangarajan said.

Regarding the impact of the events in Japan on the Indian economy, he said: "There is no estimate on the impact of events in Japan on India. Possibly, one could expect less investment to come from Japan next year because there will be so much more demand at home (in Japan)."

Rangarajan also said that India's software exports to Japan may come down a bit.