Basu pitches for price hike in diesel, LPG

Cautioning the government against a roll-back of hike in petrol prices, Chief Economic Advisor Kaushik Basu on Friday pitched for increasing prices of diesel, kerosene and cooking gas.

In an interview to Karan Thapar’s television programme ‘Devil’s Advocate’ on CNN-IBN, Basu said increasing the prices of these three items should be done in line with the trend of global prices.

“Professionally in people’s interest, the answer is yes (diesel price deregulation). In fact for diesel, all the three items which you are talking about the under recoveries are now huge which means the government is subsidising to keep the price down,” he said.

When asked about the possibility of government rolling back petrol price hike in the view of widespread protests, he said: “Things can happen, but I hope it won’t happen.”

More importantly, he added, the failure of the government to contain fiscal deficit to 5.1 per cent of the GDP would have adverse implications on inflation. “There will be a damage, if we make moves where there is risk that we will breach our fiscal deficit target... which means in the long run (there will be) higher prices in general”, he added.

The oil marketing companies (OMCs) on Wednesday increased the price of petrol by over Rs 7.50 per litre in view of rising prices in the international market and falling value of the rupee.

On raising prices of other petroleum goods like diesel, kerosene and cooking gas, Basu said, “you can not beyond a point, shelter the population from the global phenomena — which is increase in oil price”.

Although the government has taken an in-principle decision to free diesel prices, it has not been able to implement it fearing political implications.

The government, Basu said, would have to act “sooner than later” and possibly take a view on freeing diesel prices within a couple of months.

“I am a bit hopeful that there will be some action...”, he said, adding “in all the three items (diesel, kerosene and LPG), the under-recoveries are huge ...which means the government is subsidising to keep the prices down.

“And (in) diesel, taxes are minimal so it is just that we are subsidising given that international prices are very high”, he said. Replying to questions on policy paralysis, Basu admitted that “reforms and decision makings have slowed down. It has had some effect.”