Diesel decontrol urgent: Rangarajan

An increase in diesel prices looks inevitable with the Prime Minister's Economic Advisory Council ( PMEAC) chairman C Rangarajan on Thursday saying that there is an urgent need to take corrective action.


Speaking to reporters on the sidelines of the 26th Skoch Summit here, Rangarajan said that the need to take corrective action has become urgent. "We need to contain the fiscal deficit at 4.6% of gross domestic product," he said, adding that to achieve this diesel prices need to be freed to reduce the subsidy burden on the government.


Besides widening the fiscal deficit, the freeze on diesel prices was also hurting state-owned oil companies, which were bleeding because of high crude oil prices which they could not pass on to consumers. The government has been delaying an increase in prices of diesel since it is a primary fuel for transportation and any increase in diesel prices immediately pushes up transportation costs and consequently food prices. Crude oil prices have shot up following unrest in the oil producing regions of Middle-East.


Rangarajan said the Indian economy was expected to grow close to 8.5% in 2011-12. He, however, also said that policymakers should make all-out efforts to contain inflation at low levels. "High growth does not warrant high inflation. We must use all of our policy instruments to bring down the current inflation and re-anchor the inflationary expectations to the 4 to 5% comfort zone," he said.


According to Rangarajan the growth target for the twelfth plan period should be around 9 to 9.5%. "With the investment rate touching 38% of GDP, the economy should be able to grow between 9% and 9.5%. Pushing the economy beyond that will run into problems. First of all, it will be difficult to achieve the required investment rate of 40%, second, pushing the economy beyond this would result in inflationary pressures re-emerging."


Speaking on the impediments to achieving 9% growth, Rangarajan said there were two main challenges. "In the medium term, there are two sectors which pose a major challenge and these are the farm economy and the power sector," he said. While the farm sector was constrained by low yields the shortage of power leads to inefficiency in a broad range of areas impacting profitability and competitiveness, he added.

Source- Times of India

Stevenson
Management Trainee- Fundamental Analyst
Denip Consultants Pvt.Ltd