April 17th, 2012
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RBI asks govt to hike fuel prices

petrol-price-hikeMumbai: The RBI has asked government to hike prices of diesel, kerosene and LPG to arrest fiscal slippages. “Overall from the perspective of vulnerabilities emerging from the fiscal and current account deficits, it is imperative for macroeconomic stability that administered prices of petroleum products are increased to reflect their true costs of production,” RBI Governor D Subbarao. Global crude oil prices have surged since the beginning of 2012 on account of geo-political concerns in the Middle East and abundant global liquidity.

High subsidies are putting pressure on the country’s fiscal deficit, which touched 5.9 per cent of GDP last fiscal and is pegged at 5.1 per cent in 2012–13. India imports about 80 per cent of its crude oil requirement. The government targets to bring down the subsidy bill to below 2 per cent of GDP this fiscal and 1.75 per cent in the subsequent years. Government has made a provision of Rs 40,000 crore towards fuel subsidy for 2012-13. Dr. Subbarao said any slippage in fiscal deficit would have implications for inflation. “Upside risks to inflation persist. These considerations inherently limit the space for further reduction in policy rates,” he said.


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