Delink fuel price from politics: Rangarajan

The Economic Advisory Council has said political compulsions should not be allowed to influence the pricing of petroleum products.

C Rangarajan, chairman of the council, also informed Prime Minister Manmohan Singh of the constraints that shackled economic growth.

The council, which advises the prime minister on economic issues, said the hike in petroleum products would have a direct impact of 0.4 per cent on the inflation rate.

After accounting for the fuel hike, the inflation rate was likely to be between 5-5.5 per cent. The overall impact (both direct and indirect) would be less than 1 per cent, Rangarajan added.

Following the hike in repo and reverse repo rates by the Reserve Bank of India today, and consequent likelihood of hardening interest rates, Rangarajan said the development should not come as a surprise.

Commenting on the country's economic growth, he said it was on course to grow between 7-8 per cent. The council felt that economic growth would be in excess of 8 per cent provided the agricultural sector grew at 4 per cent this year.

On the other hand, if agriculture growth rate was around 2 per cent, an 8 per cent economic growth rate would still be possible, Rangarajan said.

The Economic Advisory Council felt agriculture and infrastructure (power sector) were the primary constraints.

The council felt schemes to uplift the agricultural sector needed to combine credit availability with measures to augment productivity.

Mere supply of credit to the sector would be inadequate, felt the council. The council and the prime minister discussed other reform measures such as agricultural extension.

The EAC briefed Singh on the current volatility in the stock market. The volatility reflected worldwide trends in the sector and was also caused by some domestic issues such as the hike in petroleum products, Rangarajan said. He added that the Prime Minister took note of trends in the stock market.

The council said volatility in the stock market had an impact on the level of corporate investment. Rangarajan linked volatility in the secondary market to the health of the primary market. The primary market, in turn, was linked to the level of corporate investment, he added.

Among the other issues discussed were pension reforms, the Banking Regulation Bill and Competition Bill. All the issues are also being considered by Parliament as related bills have been tabled by the government.