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No deregulating diesel unless crude stays costly

The government on Thursday said it is not in favour of freeing diesel prices right now as headline inflation is still in the uncomfortable zone.

business Updated: Mar 03, 2011 21:42 IST

The government on Thursday said it is not in favour of freeing diesel prices right now as headline inflation is still in the uncomfortable zone.

“I am not of the view that diesel price deregulation is inevitable and that is the position taken by petroleum ministry right now. Given the inflationary situation right now, we don't want to do that...,” said Kaushik Basu, chief economic adviser on Thursday.

However, Basu said that if the international crude oil prices continue to remain high for a longer time the government will have to make a tough choice between hiking diesel and cooking fuel prices and shelling out more on oil subsidies to companies.

“I can't give you an assurance that it will happen nor can I say it won't happen....It depends on how long the $115-116 a barrel lasts. There can come a point where we are forced to confront the question — Do we take it on fiscal or do we pass it on consumers,” Basu said.

For 2011-12, the finance ministry has estimated R23,640 crore in oil subsidy, lower than R38,386 crore of current fiscal.

Global crude oil prices are at the highest level since 2008, touching $116 per barrel.

The government had in June last year decided to free petrol pricing from its control and the same on diesel was to be done eventually.

The spike in crude rates has meant that even retail rates of petrol have not moved in tandem with cost while the deregulation of diesel has been kept in abeyance.

The country’s oil imports grew by 7.8% to $7.85 billion in January, taking the import bill during April- January, 2010-11, to $79.95 billion.

Meanwhile, commenting on food inflation figures released on Thursday, Basu said although there is a dip, the numbers are not very comfortable.