Kaushik Basu in Calcutta on Thursday. Picture by Kishor Roy Chowdhury

Calcutta, April 8: Chief economic adviser Kaushik Basu said the government should decontrol diesel prices before it was too late to pull down long-term inflation.

“Personally, I think diesel prices ought to be freed before long,” Basu said on the sidelines of a meeting of an industry association here.

Though the Centre is ready to decontrol diesel prices, it is unsure of the timing. The government has already freed petrol prices from administrative control.

“We should decontrol diesel prices. But whether it should be done immediately or at a later date is a question of time and a government decision,” Basu said. He said it should come at a time inflation was low.

Basu is also upbeat on the prospect of a low rate of inflation. “For March, inflation will be around 8 per cent. But we are likely to see a bigger slide in April when I expect the rates to go below 7 per cent by the month-end,” he said.

Inflation, which stood at 8.31 per cent at the end of February, is expected to decline in March on account of a fall in food inflation, which stood at a four-month low of 9.18 per cent for the week ended March 26. A tight monetary policy by the Reserve Bank and the government’s decision to trim fiscal deficit also helped in lowering inflation, Basu said.

“After April, it is anybody’s guess what the rate of inflation will be. But I personally believe that within a year it will come down to 5 per cent.”

However, diesel price decontrol will have a beneficial impact in the long run. “If we liberalise diesel prices immediately, there will be a cascading effect on the general price level in the short-run. In the short-run, there will be a spike in inflation. But, in the long run, inflation will go down.”

The upcoming elections in five states and the high crude prices in the global markets are holding the Centre back from decontrolling diesel.

“The high crude price in the international market is because of the crisis in West Asia. I do not think such a high crude rate is going to sustain for long,” he said.

If the inflation rate falls below 7 per cent after May, it will give the government room to decontrol domestic diesel price and link it to global markets.