Prime Minister Manmohan Singh on Monday ruled out rollback of petrol and diesel prices, saying the economy has the capacity to absorb the increase without triggering inflationary pressure.

“Any increase in prices does hurt some people, but we have to take a long-term view,” he told reporters accompanying him on his way back home from Saudi Arabia.

Mr. Singh made it clear that following populist fiscal policies for long harm would the economy.

“We cannot save people from inflation if we follow all populist fiscal policies. Sooner or later these populist policies if persisted for a long time to come will lead to the erosion of the investment climate,” he said.

The Prime Minister was asked about growing concerns over the recent hike in oil prices and the ripple effect that may have on the economy.

The Prime Minister said populist fiscal policies would also lead to the erosion of the capacity to create new jobs which in turn will erode the government’s ability to invest in flagship programmes for the poor people.

“So we have to balance these factors." The direct effect of the increase in the fuel prices effect on the Wholesale Price Index will be no more than 0.40 per cent, the Prime Minister said.

He said there may be some escalation but “my hope now is that with the Rabi crop coming into the market, prices which have caused a great degree of concerns in areas like wheat, sugar, oilseeds and pulses, will see some moderation“.

He expressed confidence that the economy has the capacity to absorb the hike in oil prices without setting in motion any inflationary spiral.

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