NAC member defends petrol price hike, experts differ

Sonia Gandhi-led National Advisory Council (NAC) has defended the petrol price hike by saying it will not have any major impact on inflation, however some experts are of opinion that it was unwarranted.

"The impact of hike in petrol prices on inflation will be marginal. Our transport system entirely depends on diesel. Petrol is consumed by 5 per cent of India's population. They are the people who are influential, they are vocal but their number is very small," NAC Member and Former Planning Commission member N C Saxena told PTI.

"I am in support of the price hike," Saxena said while commenting on the decision of the oil marketing companies to raise petrol prices by Rs 1.80 a litre, citing the impact of rupee depreciation on the cost of crude oil imports.

Following the increase, petrol in Delhi costs Rs 68.64 a litre.

Noted Economist and Former Union Minister Y K Alagh too supported the price hike saying, "Needs of really needy people can be taken care of in imaginative ways."

Echoing views, FICCI Secretary General Rajeev Kumar said, "The rise will have somewhat limited (impact on inflation) because cascading effect of petrol is not very high unlike diesel."

Petrol price, he added, should follow market trend otherwise it would have huge impact on fiscal deficit.

On deregulation of diesel prices, Kumar said, "I think diesel prices should be deregulated," but it should be done after inflation comes down.

Replying to questions on deregulation of diesel prices, Prime Minister Manmohan Singh had said, "I have no hesitation in saying ultimately we must allow the markets to find their own level except for those commodities which are semi public goods."

However, CP Chandrashekhar, Professor of Economics at Jawaharlal Nehru University said the petrol price hike would impact the budget of common households.

"Petrol is a universal intermediate product, besides the direct consumption of petrol. It enters into cost of production of all sorts of things. Today, lower middle class families are also buying vehicles. It will have major impact on inflation," Chandrashekhar said.

He further said it was wrong to treat petrol like any other commercial product.

"Price rise should be treated like indirect tax. That's why for a long time, petrol price was regulated by the government," he added.

Chandrashekhar also questioned the decision of oil marketing companies to hike petrol price because rupee has depreciated.

"Because rupee depreciated, people have to pay more. People have nothing to do with foreign exchange transition," he noted.

The petrol price hike comes at a time when inflation is touching double digits and the move could have a cascading effect on prices. Inflation in September stood at 9.72 per cent much above the Reserve Bank's comfort level of 5-6 per cent.

Petrol prices were freed from government control in June last year.