Tuesday, 24 January 2012

RBI asks government to deregulate diesel prices



The Reserve Bank today said the government should deregulate diesel prices in order to contain the trade deficit, which is expected to widen to $160 billion during the current fiscal.

"Particularly, as the food subsidy bill is expected to rise, it will be prudent to fully deregulate diesel prices to contain both aggregate demand and the trade deficit," the RBI said in its third quarterly monetary policy review.

While petrol prices are market-linked, the government decides the rates of LPG, kerosene and diesel, which usually results in a large budgetary expenditure on subsidies.

Petroleum product prices have also not been revised in response to crude oil prices, contributing to both fiscal slippages and suppressed inflation. Revision in domestic administered prices will add to inflationary pressures, although such revisions are necessary to maintain the balance between supply and demand," the RBI said.

"If the increase in government borrowing already announced is an indication, the gross fiscal deficit for 2011-12 will overshoot the budget estimate substantially," it said, adding that the increase in fiscal deficit could potentially crowd out credit to the private sector.

via EconomicTimes


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