Rangarajan favours decontrol of diesel prices

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Prime Minister's Economic Advisory Council (PMEAC) chairman C. Rangarajan on Saturday pitched for freeing diesel prices but suggested that it should be done when inflation starts declining.

"Diesel is like any other commodity and (oil marketing) companies should be allowed to fix prices. The most appropriate time for doing it will be when inflation starts declining," Rangarajan told reporters on the sidelines of the 3-day conference 'Bancon 2011' organised by Indian Banks' Association and Indian Overseas Bank here.

Petrol rates are market-linked but the prices of LPG, kerosene and diesel are subsidised and hence government-administered.

Oil marketing firms raised petrol prices by Rs 1.80 per litre on Thursday, a move which has come in for an all round attack with even UPA key allies, TMC and DMK opposing it.

Rangarajan's comments come a day after Prime Minister Manmohan Singh virtually justified the hike in petrol prices, saying there should be further movement towards deregulation of fuel prices and market should be allowed to find its level.

On inflation, that has been a constant cause of concern for the government and the Reserve Bank of India (RBI) for over 18 months, Rangarajan said it should stabilise at seven per cent by March 2012.

Food inflation soared to 12.27 per cent for the week ended October 22, while the overall inflation in September stood at 9.27 per cent.

"Though inflation rates were mainly influenced by foodgrains and vegetable prices, it has now become generalised and spread even to manufacturing sector which has recorded at 7.4 per cent," Rangarajan said.

He also said that RBI's raising its policy rate would help rein in inflation. "I hope that by December-January, inflation would break and around that time perhaps a reversal policy is possible which would keep deficit near budget levels," he said.

Rangarajan, a former RBI Governor, also cautioned that public sector banks need to watch out for liquidity risk in real estate, infrastructure, power and aviation sectors.

Asked whether corporate entities should be allowed to foray into the banking space, he said "it is debatable. But, if proper applicants fit in from the non-corporate business segment, they should be considered."

He stressed upon the need for cautious infusion of capital into state owned banks as the government may need to step-in for supplementary demands for grants between Rs 4,000 and Rs 10,000 crore to meet the capital requirements (of banks) as against the Rs 6,000 crore budgeted for this year.