"Domestic diesel prices are not in tune with the international prices of crude. Action will have to be taken to correct the prices of diesel for attaining fiscal consolidation," he said at a seminar by Indian Institute of Foreign Trade here.
Asked when the next diesel price hike was expected, he said that it depended on the government.
"It is necessary to raise the diesel prices which may also help in bringing down the headline inflation," Rangarajan observed.
Hike in railway passenger fares, which was announced yesterday, would also help the government in achieving fiscal consolidation, he added.
Stating that high inflation, high fiscal deficit and high current account deficit (CAD) were major areas of concern, Rangarajan, a former RBI governor, said the government was working towards bringing them under control.
High gold imports had contributed to high CAD which stood at 5.4 per cent in the second half of 2012-13 and was creating pressure on the rupee.
Other financial assets would have to be made more attractive, he said, adding that high inflation rates had made gold more attractive as a hedging instrument for which the yellow metal's imports had risen.
Rangarajan said inflation was expected to be in the region of 7 per cent by the end of March. MORE
