Montek says price hike will fuel growth

NEW DELHI: Even as Congress-led government came under heavy criticism from opposition and UPA allies for raising fuel prices, the increase in diesel price and capping of LPG cylinders was supported by deputy chairman Montek Singh Ahluwalia.
“Diesel price hike is a tough decision and we need lot of tough decisions to get to 8% growth rate,” Ahluwalia said.“I think they have taken a very important step. This is not complete deregulation. Both petrol and diesel price should be deregulated. It has to be done in steps,” he said.
Ahluwalia argued that the government’s decision will change the perception of the global rating agencies which had threatened to downgrade India’s sovereign rating.
“Enough credible fiscal space has been created....Rating agencies perception should also change,” he said.
Strongly backing the decision, Ahluwalia said the move has created substantial fiscal space for the Reserve Bank of India (RBI) to act. “We have done the right thing. The rest is up to the RBI (to do),” he said while referring to the forthcoming mid-quarterly review of monetary policy to be announced on Monday.
The central bank is meeting on Monday to review the country’s monetary policy and most economists do not expect RBI to cut rates in view to high inflation.
"There is no doubt in my mind that the adjustment in diesel price represents creation of fiscal space...One of the problem people earlier felt was that the fiscal situation of the country lacks credibility because there was a sort of impression that diesel prices cannot be raised. The signal that has been given is very good," Ahluwalia said. tnn