Fuel prices should be decontrolled, says Kaushik Basu

Chief Economic Advisor Kaushik Basu today said he favoured freeing the prices of petroleum and petroleum products, reiterating the opinion of top policy advisors like Planning Commission Deputy Chairman Montek Singh Ahluwalia.

Moreover, he said, eventually prices would be decontrolled, and the only thing being deliberated is the timing of such a decision.

“My belief is that fuel prices ought to be decontrolled. I feel that a certain amount of decontrol ought to be done and will eventually be done,” Basu told reporters here.

He said decontrolling prices of fuel products would raise the inflation index but the adverse impact would even out in six months. Basu’s comments came on a day when India’s headline inflation, as measured by the Wholesale Price Index, breached the double-digit mark at 10.16 per cent in May.

“The inflation figure you are looking at may increase in the short term, but six months down the line, you would see lower inflation, even as the index will reflect international prices,” he said.

The chief economic advisor said with the decontrol of fuel prices, the underrecoveries of oil companies would go down and the fiscal situation would improve, curtailing inflationary expectations.

Basu said if prices were artificially kept at a low level, the impact on inflation would be long-lasting due to the widening fiscal deficit, while if these prices were linked with global rates, the impact would be immediate but for a short period.

Moreover, he said direct subsidy should be given to vulnerable sections that would be severely affected by rising fuel prices.

The report of an expert group headed by former Planning Commission member Kirit Parikh demanding market-linked prices for petroleum products is lying with the government. A meeting of the empowered group of ministers, presided over by Finance Minister Pranab Mukherjee, had met last week to consider this. A decision was deferred since there was lack of quorum. The group meets again on June 17.