PM’s economic advisory council chief C Rangarajan hints at diesel, LPG price hike-Pradeep Thakur
C Rangarajan, chairman of the PM's economic advisory council, on Friday hinted at price corrections in both diesel and cooking gas over the next few months to send a strong signal to foreign investors and to ensure adequate capital flows. "I think it is necessary to act on prices of other petroleum products also," he told TOI. Rangarajan, a former RBI governor, said there was a proposal on dual pricing of diesel but it did not seem feasible to implement.
He discounted suggestions that the petrol price rise will have a significant impact on inflation. He said action on diesel and LPG prices would have some temporary effect on inflation but would help in bridging the fiscal gap, which was important to attract foreign capital flows.
"We need to evolve a mechanism through which low income groups are not impacted. The rise in price of crude has made it more compelling to do it now. This is a proposal under consideration. Some people have suggested dual pricing in diesel but some say it is difficult to do. But during the year, action is called for," he said.
He said the government needed to be proactive on taking policy decisions as investors expected fiscal deficit to be maintained at budget estimates. "One action has been taken by raising petrol prices. By doing so, the government has indicated that it is committed on fiscal consolidation and that will result in positive outcome as far as capital flows are concerned."
The idea of a dual pricing system for diesel to ensure that farmers get subsidized fuel but SUV owners don't might seem attractive, but is unworkable. The experience with a similar system in kerosene has shown how easily it can be subverted and can give rise to a black market with strong vested interests that are willing to kill to protect their stakes. If the government does want to subsidize farmers while excluding rich urbanites, it perhaps makes more sense to hike the price of diesel to what its cost would demand and provide direct income support to farmers to help them cover some of it.