Prime Minister's economic panel on Friday favoured deregulating diesel prices without waiting for inflation to decline to 7 per cent, to reduce subsidy and keep fiscal deficit at 4.6 per cent of the gross domestic product (GDP) in 2011-12.
"I thought earlier (that) when inflation rate comes down in the region of 7 per cent (diesel price deregulation) may be done," said Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan on the sidelines of a function in the national capital.
However, he added: "It is taking more time for inflation to come down and since oil marketing companies are incurring heavy losses, huge under recoveries, action (on deregulation of diesel prices) will have to be taken."
State-owned Indian Oil, Bharat Petroleum and Hindustan Petroleum are suffering losses on account of sale of diesel at subsidised rates. Oil companies are losing Rs 18.19 on sale of every litre of diesel at the current price of Rs 37.75 per litre in Delhi.
Although the government has deregulated petrol, giving freedom to oil marketing companies (OMCs) to fix prices, it has refrained from taking any decision regarding diesel prices in view of high inflation.
The Empowered Group of Ministers (EGoM), headed by Finance Minister Pranab Mukherjee, is likely to meet on June 9 to consider raising prices of the three controlled commodities - diesel, domestic LPG and kerosene.
Mukherjee recently said the government would keep a tab on public expenditure to ensure that Budget targets for this financial year could be met. It expects the fiscal deficit to be 4.6 per cent.
On Reserve Bank of India's (RBI) monetary policy, Rangarajan said the regime of high policy rate may continue till inflation comes down.
"It (inflation) will have to show some decline from the current level. Probably, RBI will reverse its tightening stand only when there are definite sign of inflation coming down," he said.
Though inflation has some signs of moderation, it was still high. For April, the wholesale price index based inflation was 8.66 per cent.