Fearing that the soaring global crude oil prices will only widen the gap between the retail fuel price and their cost of production, the Reserve Bank of India on Tuesday called for an immediate hike in petrol and diesel prices, even if it adds to inflationary pressure and moderates economic growth.
"Even though an adjustment of domestic retail prices may add to the inflation rate in the short run, the RBI believes that this needs to be done as soon as possible," RBI governor D Subbarao said. "The critical assumption that petroleum and fertiliser subsidies would be capped is bound to be seriously tested at prevailing crude oil prices."
Releasing the Monetary Policy Statement for 2011-12, Subbarao said the failure to increase retail prices would increase the government's fiscal deficit.
The government has not allowed state oil firms to revise diesel prices since June last year when crude oil was ruling at $72-73 per barrel. Global crude oil prices are presently trading at over $110 a barrel in international markets.
At the existing global oil prices, diesel is being sold at a loss of Rs 18 per litre while petrol is currently being undersold by Rs 8.50 per litre.
However, officials in the petroleum ministry said the possibility was that petrol prices may be hiked by Rs 3 to Rs 4 a litre sometime this month. Discussions over a diesel and LPG price hike is also being contemplated.
Unchanged prices of diesel, domestic LPG and kerosene would mean that the government will have to find ways to meet the over Rs 1,80,000 crore revenue loss projected for the current fiscal.
Subbarao said the prevailing high crude and commodity prices have been taken into account while projecting the 8% GDP growth for this fiscal.
"Going forward, high oil and other commodity prices and the impact of the RBI's anti-inflationary monetary stance will moderate growth," he said.