Inflation may go up by 0.9%, says Basu

NEW DELHI: The decontrol of fuel prices is likely to see inflation rising by 0.9% in the short term, according to finance ministry\'s chief economic adviser Kaushik Basu.



He said on Friday that while the petrol prices will be completely decontrolled, the diesel price will be partially free where a fixed subsidy will be available to oil marketing companies for under recoveries and any rise in international prices will also see domestic retail rates going up.



Basu said the money saved on subsidy would be used to bring down revenue and fiscal deficit. In the long run, this would have a downward pressure on prices which would be visible in six to nine-month period.



Calling it one of the most major reforms of recent times, the chief economic adviser said this will lead to rebalancing of expenditure which will benefit every section across the country. \"From now on, this will rationalize the way we spend, the kinds and amount of energy we use, and the cars we manufacture. It is an important step in making India a more efficient, global player,\" Basu added.



But why was kerosene left out of this reform process?



\"Some balancing act has to be done to pass on the benefit to the bottom segment of the society. It\'s been the government\'s considered decision,\" Basu said. He, however, emphasized on the need to lift the subsidy from the `aam aadmi\' fuel as higher prices in neighbouring Bangladesh, Nepal and Bhutan has been leading to smuggling of kerosene to those countries.



This hike, he said, would also arrest adulteration of the motor fuel. The funds saved through decontrol measures would not only help the government in retiring some of the fiscal and revenue deficit but would bring in private players and enhance performance of public sector oil companies, he added.



He said inflation at the end of this fiscal is likely to remain below 5% as estimated earlier. Prices rarely come down but they will stop rising in the manner that they do right now by initiating these reform measures, he added.








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