New Delhi: India could decide to hike domestic fuel prices once headline inflation begins to soften, a government adviser said Saturday.
Doing so now would risk pushing consumer prices higher, the adviser said.
Submitting fuel to full market pricing would bolster India's fiscal health because fuel accounted for a quarter of its estimated subsidy bill of Rs1.2 trillion ($25.6 billion, Dh96 billion), the adviser said.
It would also help state-run energy retailers such as Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation operate more profitably.
The Prime Minister's Economic Advisory Council chairman C. Rangarajan said: "Perhaps the timing of the decision could coincide with the period when the overall inflation is showing some softening".
A panel led by Finance Minister Pranab Mukherjee on Monday postponed a decision on reforming fuel pricing after two key ministers from small coalition partners failed to attend.
This was considered to be a clear signal of their reluctance to be associated with a policy that may improve India's finances at the cost of votes.
The government is being seen as biding its time until it gets a better sense of the strength of the oncoming summer monsoon, which could ease the effect of inflation on consumers already burdened by higher food bills.
Rangarajan, a former head of the Reserve Bank of India (RBI), said he expected the May headline inflation number to stay below the 10 per cent level and eventually ease to around six per cent by the end of March, 2011.
The wholesale price index, the central bank's most closely watched gauge of inflation, probably rose an annual 9.56 per cent in May, staying close to 9.59 per cent in April, according to a Reuters poll.
Inflation has become a major worry for the Congress-led government and is being seen as undermining its support base.
The Reserve Bank of India has described the prevailing inflationary situation as "worrisome" and has raised rates twice since mid March. The bank, which is looking to raise rates steadily, is expected to deliver another hike of 25 basis points at its scheduled policy review on July 27 amid calls from some analysts for more firm policy action.
However, Rangarajan said only high and persistent inflation could provoke a change in the central bank's policy approach.
India's industrial output rose 17.6 per cent in April from a year earlier.
