PMEAC for early decision on freeing of diesel prices

The Prime Minister’s economic advisory panel has pitched for an early decision on freeing of diesel prices, saying oil companies are incurring huge losses on account of difference between domestic and international prices.

“At one time I felt if inflation comes down to 7 per cent it can be done. Since it is taking time for the inflation rate to come down, perhaps an earlier decision (to deregulate diesel prices) may be required,” Prime Minister’s Economic Advisory Council Chairman C Rangarajan said.

He added, “We cannot wait (for inflation to come down) because the Oil Marketing Companies (OMCs) are incurring a huge loss. It (deregulation) may happen sooner than later.”

State-owned Indian Oil, Bharat Petroleum and Hindustan Petroleum currently lose Rs 16.17 a litre on diesel. After adding local sales tax or VAT, the desired increase to make rates at par with international prices is Rs 18.19 a litre.

However, any rise in rates of petroleum products ends up fanning inflation, which is already high.

Inflation was 8.98 per cent in March, prompting the Reserve Bank to go in for another increase in lending (repo) and borrowing (reverse repo) rates by 50 basis points in its annual credit policy review on May 3.

The PMEAC chief also suggested an increase in diesel prices, saying a failure to do so would make it difficult for the government to achieve fiscal deficit target of 4.6 per cent in the current financial year.

“The adjustment in diesel prices either through a direct increase or decontrol is really required if you have to keep the fiscal deficit at the budgeted level. Otherwise, it will not be possible to achieve the deficit target of 4.6 per cent of the GDP,” the PMEAC Chairman said.

International crude oil prices have been soaring due to unrest in West Asia and North Africa region.

The Empowered Group of Ministers headed by Finance Minister Pranab Mukherjee is likely to take a decision on raising prices of petroleum products next week. It is widely believed that diesel prices will be raised by Rs 3-4 a litre.

Although the crude prices in the international market rose to over $100 a barrel, the Government refrained from taking a call in view of the assembly elections in four states and a Union Territory.

The results, declared on Friday, have largely favoured the parties of the ruling UPA government. On Saturday, the government raised petrol prices by Rs 5 a litre.