Diesel prices may start going up in a matter of three months if indications of the Prime Minister’s economic advisory council are anything to go by.
Diesel prices should be deregulated but the timing for doing it is important in the wake of the present high inflation levels, said Dr C. Rangarajan, chairman, economic advisory council to the Prime Minister, delivering his inaugural address at Bancon 2011, a bankers conference in Chennai.
“Diesel is like any other commodity and oil companies should be given the freedom to fix their prices in line with international crude prices. But the most appropriate time for doing it will be when inflation starts declining. And I expect inflation to stabilise at 7 per cent by March 2012,” he said.
Though inflation rates were mainly influenced by foodgrains and vegetable prices, it has now become generalised and spread even to the manufacturing sector which has recorded a 7.4 per cent rate, he said. So, RBI had to resort to a series of interest rake hikes to curtail demand across all sectors, he justified.
However, Mr Rangarajan added, “By December-January, inflation will break and around that time perhaps a reversal in policy is possible which will keep deficit near budget levels.”
Cautioning about the growing non-performing assets in banks owing to slowdown in growth, he said banks needed to watch out for liquidity risks in real estate, infrastructure, power and aviation sectors.
On whether corporate entities must be allowed to open banks, Mr Rangarajan said, “Though this is an issue that needs to be debated, if there are fit and proper applicants from the non-corporate business segment, including NBFCs, they must be considered.”