Diesel prices should also go on a float: Basu

Chennai: Advocating diesel prices also go on a float like petrol, Chief Economic Adviser Kaushik Basu today said the idea to fix the tax component in petrol prices in the country could be looked into and discussed.

“I believe petrol should be on a float, the way it is now. And diesel should also go on a float. Float does not mean you raise it, but it means that when the international prices go up, Indian prices also go up somewhat. When global prices drop, Indian prices drop somewhat,” he said replying to a student’s query on petrol prices.

He was interacting with students of a city women’s college after delivering a lecture on ‘Indian Economy - Problems and Prospects’.

Observing that prices were a signal for the ordinary people, Basu said, “When onion price rises, the message going out is consume less onions now, buy something else… Diesel pricing, by holding that price constant, we have switched off this important signal to be given to the market”.

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“So, we have to go in for a floating rate, but the exact fixing of taxing rate, your comments are welcome. This is something to be looked into and discussed,” he said responding to the suggestion to fix the tax component in petrol pricing.

Terming the present economic condition as “very choppy,” he said: “But, we are also overreacting to it. Its one year of the choppy period and this is the year where the European situation is very difficult and I don’t think that the people here are realising how difficult the global scene is.”

Defending India’s growth rate of 6.5 percent last year, Basu said, “In today’s climate, where the entire world has slowed down, 6.5 percent is actually pretty decent growth.”

“And if you look at growth rates among the BRIC countries, among the G 20 countries, among any cluster, India is in the top three-four countries in the world. It slowed down, but the entire world has slowed down,” he added.

Basu also said, “…we don’t pay enough attention for incentives, the design of ordinary people’s incentives”.

He said individual incentives were “critical.”

“In government we have this propensity to think of other people as machines, who will do whatever they are supposed to do. ..If you ignore the rationality of the agents who deliver, you will make mistakes of this kind,” Basu said.

Unfortunately in India as soon as one pointed out the importance of incentives and the laws of the market, one gets branded as right wing or left wing, he said.

“To me, this has nothing to do with ideology… the analysis of the laws of the market quickly labelling the analysis as neo-Liberal or Marxist is a fundamental flaw in our thinking,” he said.

PTI