As per Prime Minister's Economic Advisory Council chairman C Rangarajan, country's headline inflation may miss the expected 7 percent-mark by this fiscal-end if the government goes ahead with increasing administered prices of diesel. While addressing an event organized by the Indian Institute of Foreign Trade, he said, ‘in the normal case, it is expected to come down to 7 percent (at the end of current fiscal). But, some adjustments are being made in the administered prices they may come in the way of headline inflation coming down.’
Inflation based on the wholesale price index (WPI) cooled down to 7.2 percent in November this year from 10.9 percent in April 2010. However, if the government accepts the Kelkar Committee’s recommendation of immediate hike in fuel prices and complete deregulation of diesel prices, a further moderation in the short-run may not be possible.
Further, the oil ministry had already moved a note to Cabinet based on recommendation of the Vijay Kelkar Committee, which was appointed by the finance ministry to suggest a roadmap for fiscal consolidation. The committee had recommended an immediate hike in price of diesel by Rs 4 per litre, kerosene by Rs 2 a litre and LPG by Rs 50 per cylinder.
Moreover, for attaining fiscal consolidation, the government must reduce the mounting subsidy bill, should act quickly to raise diesel rates to bring them in line with global. Justifying the government’s proposed move of raising fuel prices Rangarajan said, the decision to raise the diesel prices would be a right decision on a medium term and headline inflation may moderate to 6 percent in 2013-14.
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