Need to raise petrol prices urgently, says Rangarajan

The government needs to raise petrol prices urgently to address the twin problems of fiscal deficit and current account deficit, C Rangarajan, Chairman of Prime Minister's Economic Advisory Council told CNBC-TV18 in an exclusive interview today.

"There will be a temporary impact on WPI (wholesale price index) inflation when petrol prices are raised, but the impact on fiscal deficit will be much more if (petrol) prices are not raised," Rangarajan told CNBC-TV18.

Cutting fuel subsidy, or in other words, hiking retail fuel prices is the key to the government lowering its fiscal deficit as well as trimming its import bill as crude accounts for roughly a third of the total bill.

Rangarajan said the slide in the rupee was much more than anticipated, and that the problem was being aggravated by lack of foreign capital flows into the country. The rupee today touched a fresh record low of 55.82 to the dollar today even as the Reserve Bank of India is using every weapon in its arsenal to support the currency.

"What is really needed is to revive sentiment to enable large capital flows," he said, adding that the RBI should use forex reserves to prevent abrupt swings in the rupee, and the government should use broader macro economic policy as a tool to encourage capital flows.