"I personally believe that we should decontrol diesel prices, which will take some pressure off the fiscal burden and in the long run, it will cause inflation to go down," he told PTI in an interview.
While petrol prices are market-linked, the government decides the rates of LPG, kerosene and diesel, which usually results in a large budgetary expenditure on subsidies.
Oil marketing companies increased petrol prices by Rs 1.80 per litre yesterday. Finance Minister Pranab Mukherjee has acknowledged that the hike in petrol prices will have some impact on inflation.
Petroleum Minister S Jaipal Reddy has sought a meeting of a high-powered ministerial panel to decide on revising the rates of diesel, domestic LPG and kerosene as oil companies are suffering losses on the sale of these fuels. Prices of the cooking fuel and diesel were last revised in June.
At a time when inflation is hovering near double digits, it is feared that any hike in prices of diesel will further aggravate the situation. In September, headline inflation was measured at 9.72 per cent.
"However, (it is) important to explain to our people that if we subsidise diesel artificially, by running up a large fiscal deficit, that would also exert an upward pressure on prices," the Chief Economic Advisor said.