India should free up state-subsidised diesel rates sooner than later, but timing it well to absorb the immediate price spike was the key, the country?s Chief Economic Adviser Kaushik Basu said on Thursday.
A day before crude prices touched a 32-month high at USD 124 per barrel, fuelled mainly by the Libyan crisis and a weaker dollar, the Indian government?s chief economic adviser said that he did not foresee a sustained rise as the mid-eastern unrest would eventually settle down.
?Crude prices are unlikely to push upwards for too long and I expect them to stabilise eventually,? said Basu, the Chief Economic Adviser to the Ministry of Finance, in Kolkata at programme organised by trade lobby The Bengal Chamber.
?I think the government should deregulate diesel prices sooner than later. It is in the best long-term interests of the country. However the timing could be tweaked keeping in mind certain factors,? he said.
Basu said that a short term spike in prices could be expected and the government would like to time it at a time when inflation figures, which currently were not in a ?comfort zone?, come down in the following months.
At 8.31 percent as of February end, India?s headline inflation for March is expected to hover around eight percent but then see a bigger drop to below seven percent by the end of April before touching five percent in the coming months, Basu said.
At the programme in Kolkata, Basu spoke on India?s dilemma of controlling inflation while sustaining growth, explaining in detail about ?the difficult choices that the government faced? on cooling off prices while maintaining an agreeable money flow in the economy.
?Ultimately though, inflation cannot be ignored for the sake of growth because I think rising prices would eventually affect our country?s growth. Therefore I think a little bit of growth is sacrificable,? he said, praising the government for doing ?a fantastic job? in handling the situation.
He raved about India?s projected nine percent growth for the current fiscal year, saying that sustaining that growth, however, would need shifting from just saving-and-investing to an economy based on innovation and research.
?We also need to focus on the bottom 20 percent of India?s population (in terms of poverty) and improve the delivery mechanisms to them. The leakages in subsidies meant for them should be checked,? he said, advocating direct subsidy systems for the 450 million poor in India.
Inclusive growth and hurdles on its path too featured on Basu?s talk as he broke down the challenges in a borderless economic world where injecting more money drove up prices and the coordination of central bank behaviour worldwide was imperative.