Mumbai, Aug. 29: The Reserve Bank of India today urged the government to allow greater decontrol of petroleum tariffs, rationalise taxes and ensure a gradual pass-through of prices to avoid a sharp spike in headline inflation.

“In view of the large dependence on crude oil imports, limiting the adverse impact of higher international oil prices would require adopting strategies of greater decontrol of petroleum product pricing with targeted subsidies, rationalisation of applicable taxes and duties to appropriate levels, and gradual but regular pass-through of prices to consumers so as to avoid the risk of large one-off adjustments in headline inflation,” the central bank said in its annual report for 2007-08.

Against the almost 134-per-cent increase in the prices of international crude oil (Indian basket) from $56.6 per barrel in February last year to $132.3 per barrel in July, the RBI said the prices of petrol and diesel had increased only about 14 per cent since February 2007 and, therefore, there remained a large overhang of pass-through from past increases in international crude oil prices.

The RBI also said issuing oil bonds to state-owned refiners would impact public debt. It said the interest expenditure on these bonds would widen revenue and fiscal deficits and hurt financial markets.