Reserve Bank of India (RBI) on Tuesday batted for an increase in the prices of diesel, kerosene and domestic 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 be increased to reflect their true costs of production,” RBI Governor D. Subbarao said in the Annual Monetary Policy statement for 2012-13.
While petrol prices are market-linked, the government fixes the rates of LPG, kerosene and diesel, and this results in a large budgetary expenditure on account of subsidies.
The RBI warned that the budget estimate of oil subsidy was likely to fall significantly short of the required amount. High subsidies are putting pressure on the fiscal deficit, which touched 5.9 per cent of the GDP last fiscal, and is pegged at 5.1 per cent during 2012-13. India imports 80 per cent of its crude oil requirements.