Diesel price hike will help reduce fiscal deficit: FICCI

New Delhi: The government's decision to deregulate diesel prices would marginally increase the monthly inflation in the short-run, but eventually would help to reduce fiscal deficit, FICCI said on Saturday.

"The spike in inflation (by 6-7 basis points), which is most likely to be observed, would be a short-run phenomenon that would eventually translate into lower fiscal deficit (achieving a target of 5.3 per cent of GDP), thus, opening up the option of reduction in subsidy on LPG and kerosene," FICCI President Naina Lal Kidwai said.

The latest round of diesel price increase will actually help the inflation rate stabilise in the long-term, she added. The Finance Ministry is hopeful of restricting fiscal deficit at 5.3 per cent of the GDP in the current fiscal year in view of savings on certain expenditure and the likelihood of garnering budgeted proceeds from disinvestment and spectrum sale.

On January 17, the government allowed oil marketing companies to hike diesel rates.

The government had enhanced the fiscal deficit target from 5.1 per cent to 5.3 per cent for 2012-13. FICCI said the decision to authorise oil marketing companies to hike diesel prices by a marginal amount, varying from 50 paisa per litre per month is a much needed step.

"The government's move to allow for a calibrated increase in price of diesel will enable some recovery of losses," it said, adding that it is also expected to reduce the oil subsidy bill.

On January 17, the government allowed oil marketing companies to hike diesel rates.

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