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Kaushik Basu defends petrol, diesel price deregulation

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Mr Kaushik Basu, Chief Economic Advisor
Mr Kaushik Basu, Chief Economic Advisor

To describe the

government's decision as an act of raising prices is to get it completely wrong.

Our Bureau

New Delhi, June 25

The Chief Economic Advisor to the Finance Ministry, Dr Kaushik Basu, on Friday defended the Government's decision to deregulate petroleum and diesel prices, stating that these changes would have a beneficial effect on the economy.

He said the changes would lead to downward pressure on general prices in the economy in the long run.

“Although the immediate impact of this policy will be to increase inflation, in six to nine months we will have lower prices than what would have happened in the absence of this much needed reform,” Mr Basu said in a statement here.

Mr Basu said that the decontrol on petrol and diesel, coupled with the price increase for LPG and kerosene, will have an immediate positive impact on inflation. “I expect an increase of 0.9 percentage points in the monthly WPI inflation,” he said.

Major reforms

He also said that the Government's decision to deregulate petroleum and diesel is one of the most major reforms of recent times.

“To describe the government's decision as an act of raising prices is to get it completely wrong,” Dr Basu said.

With the latest move to put both diesel and petrol prices on a float, Dr Basu noted that prices will rise and fall in step with the international prices. “For diesel, there will still be a per-litre subsidy from the government, to keep the domestic retail price below market level. But what is important is that it will no longer be a fixed price,” he said.

Dr Basu noted that more importantly, from now on, if there is a global shortage and the international price of crude rises, this signal will be transmitted to the Indian consumer.

“It will rationalise the way we spend money, 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,” he said.

krsrivats@thehindu.co.in

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(This article was published in the Business Line print edition dated June 26, 2010)
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