Rangarajan favours decontrol of diesel prices

Prime Minister's Economic Advisory Council (PMEAC) Chairman today pitched for freeing diesel prices but suggested that it should be done when inflation starts declining.

"Diesel is like any other commodity and (oil marketing) companies should be allowed to fix prices. The most appropriate time for doing it will be when inflation starts declining," Rangarajan told reporters on the sidelines of the 3-day conference 'Bancon 2011', organised by Indian Banks' Association and Indian Overseas Bank here.

Petrol rates are market-linked but the prices of LPG, kerosene and diesel are subsidised and hence government- administered.

Oil marketing firms raised petrol prices by Rs 1.80 per litre on Thursday, a move which has come in for an all round attack with even UPA key allies, TMC and DMK opposing it.

Rangarajan's comments come a day after Prime Minister Manmohan Singh virtually justified the hike in petrol prices, saying there should be further movement towards deregulation of fuel prices and market should be allowed to find its level.

On inflation, that has been a constant cause of concern for the government and the Reserve Bank of India (RBI) for over 18 months, Rangarajan said it should stabilise at seven% by March 2012.

Food inflation soared to 12.27% for the week ended October 22, while the overall inflation in September stood at 9.27%.

"Though inflation rates were mainly influenced by foodgrains and vegetable prices, it has now become generalised and spread even to manufacturing sector which has recorded at 7.4%," Rangarajan said.

He also said that RBI's raising its policy rate would help rein in inflation.

"I hope that by December-January, inflation would break and around that time perhaps a reversal policy is possible which would keep deficit near budget levels," he said.