Chief economic advisor Kaushik Basu believes that some decontrol of fuel prices could help bring down inflation that is in double digits and a matter of concern for the government.
In an interaction with reporters on Monday, Basu said, ?My belief is that fuel prices ought to be decontrolled. I feel that a certain amount of decontrol ought to be done. Further, he added that decontrolling may lead to increase in inflation in the short-term, but six months down the line, it would in fact come down due to the lower fiscal deficit. On being repeatedly asked about the timing of decontrol, he said, ?in some measure, it should be done sooner or later.?
Driven by spiraling prices of essential items, inflation surged into double digits at 10.16 % in May, the highest in the last 19 months.
On the food inflation, Basu said that while the food inflation has petered out, manufactured items like iron and steel are witnessing price inflation. ?Overall figures are still in double digits. (10.16%). To that extent it is a matter of concern,? Basu said.
He explained that food inflation may look high in May, as inflation is calculated on a yearly basis, but the food price index is only slightly higher than what it was in November, 2009.
When asked about the monetary action the Reserve Bank could take, Basu refused to give any comment saying, ? I would not be able to answer that?. The apex bank is to unveil its monetary policy on July 27. On the economic growth of the country, he was very optimistic and projected that the economy would grow by 8.9% in the first quarter of this fiscal.
?An unprecedented annual expansion in production of capital goods by 73% shows that the corporates are upbeat about growth projections,? Basu said. He expects the economy to grow by 8.9 % in the first quarter of this fiscal. Government is projecting an 8.5% growth for the economy in the current fiscal. Policy makers including deputy chairman of planning commission Montek Singh Ahluwalia has supported rationalization of fuel prices as it will leave more money in the hands of government for productive expenditure. However, Prime Minister?s EAC chairman C Rangarajan said last week that any hike in fuel prices may be considered after the inflation eases.