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Rangarajan favors raising diesel prices


The government will have to take action to correct the prices of diesel as its consumption is on the rise, C Rangarajan, Chairman of Prime Minister's Economic Advisory Council, said today.

"Domestic diesel prices are not in tune with the international prices of crude. Action will have to be taken to correct the prices of diesel for attaining fiscal consolidation," he said at a seminar organised by Indian Institute of Foreign Trade here.

Asked when the next diesel price hike is expected, he said that it depended on the government.

"It is necessary to raise the diesel prices which may also help in bringing down the headline inflation."

The hike in railway passenger fares, which was announced yesterday, will also help the government in achieving fiscal consolidation, he added.

Stating that high inflation, high fiscal deficit and high current account deficit  are major areas of concern, Dr Rangarajan, a former RBI governor, added that the government is working towards bringing them under control.

High gold imports had contributed to the high current account deficit which stood at 5.4 per cent in the second half of 2012-13 and is exerting pressure on the rupee.

Other financial assets will have to be made more attractive, he said, adding that high inflation rates had made gold more attractive as a hedging instrument for which the yellow metal's imports had risen.

Dr Rangarajan said inflation is expected to be in the region of 7 per cent by the end of March.

The country's trade deficit is rising because imports are increasing due to the growth the country is experiencing, while a rise in exports is subdued.

With the falling tax-gross domestic product (GDP) ratio, he said, the government will also have to work on the expenditure side, particularly subsidies.

The GDP growth by the end of March 2013 is expected to be closer to 6 per cent and be 7 per cent in 2013-14.

"We will be able to get back to 8 per cent growth, and 9 per cent if the international factors are favourable", he added.

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