The Telegraph
Saturday , August 27 , 2011
Since 1st March, 1999
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Inflation worry a hurdle to diesel price decontrol

Calcutta, Aug. 26: The government is reluctant to decontrol diesel price now fearing the adverse inflationary impact of such a move, said economist Kirit S. Parikh, who headed the panel constituted by Prime Minister Manmohan Singh for oil pricing reforms.

“If the government wants to decontrol diesel prices, it can do that any day. However, it is afraid of the inflationary impact. Hence, the government feels it is not the right time for it,” Parikh said on the sidelines of an environment and energy conclave organised by the Bengal Chamber of Commerce and Industry here today.

“When inflation is running at an all-time high, it (government) feels increasing the diesel prices will not be appropriate,” he said. Inflation was at 9.22 per cent in July this year.

Parikh said several political opinions had reached the government advising it against decontrolling diesel prices.

“While the (Union) finance ministry seems to understand the rationale behind decontrolling, the political opponents have not, which is why the government, owing to political pressure, is reluctant to go for the move,” he said.

Incidentally, the panel on oil reforms, headed by Parikh, had in 2010 recommended total decontrol of fuel prices as well as a hike in the prices of domestic LPG and kerosene and a level-playing field for all players in the market, whether state-owned or private.

While the government has already decontrolled the price of petrol, it has been delaying a similar move for diesel since it is the primary fuel for transportation. Any increase in diesel rates immediately pushes up transportation costs and consequently food and commodity prices.

At present, the government gives a subsidy of Rs 6.08 a litre on diesel.

According to Parikh, the government can only take a call on decontrol of prices when inflation cools down.

“There are ways in which the government can reduce taxes and decontrol diesel without raising the prices. But we are yet to get a reply from the government on this,” he added.

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