FDI More Dependable than FII: Raghuram Rajan

Bring Fuels to International Prices

Justifying the diesel price hike, Rajan said there is a need to link domestic fuel prices with international rates to curb fiscal deficit. "The best policy is move towards true cost of the fuel rather than go through second or third option. If do not tackle problem directly... The problem with diesel versus petrol is not vehicle, its fuel cost. If we can bring both to international prices or market prices, then people would make choice," Rajan said while facing the media.

Regarding the proposal of hiking excise duty on diesel cars to check consumption of the subsidized fuel and diesel price hike by over 5 per litre, he said, "Creating a new distortion by changing the price of diesel vehicle is a sort of second best solution. If you cannot move prices towards international level then you may resort to differential tax on vehicle".

Productivity to Fight against Inflation

The economic adviser attributed high food prices to rising purchasing power, by rapid economic growth in the recent past. "One of the concerns of the last few years has been food inflation, which has been not so much within the control of the government, but which has been sort of because our population has become richer, a good thing and therefore demanded more sort of higher end food products like, milk, egg, meat rather than the old cereals." Thus, in order to rebalance or reduce the food inflation, the country has to produce more, he said.

According to the statistics the food inflation has hovered above the 10 percent mark for most part of the current fiscal, only to decline to 9.14 percent in August, the overall inflation standing at 7.55 percent. It is expected that the country’s food grains production will decline by 10 percent in the kharif season of this year at 117.18 million tonnes due to deficient monsoon and drought in some states. Rajan said the less sowing of kharif food grain would put "upward pressure" on prices.