New Delhi: Former chief economist of the IMF Raghuram Rajan has said the political parties need to bury the hatchet for paving the way for deregulating diesel prices to rein in runaway fiscal deficit and boost the confidence of overseas investors who are a necessity for India.
"The time has come for political parties not to make noise about this (freeing diesel prices), this is something we need to do. It will eliminate one source of concern that the international investor may have and help bring down the fiscal deficit," Rajan said at a panel discussion late last evening.
State retailers, who currently sell diesel at a loss of about Rs 16 per litre, are projected to lose a record Rs 208,059 crore in revenues on fuel sales this fiscal and the government has to find ways to meeting this subsidy.
The government proposes to bring down the fiscal deficit to 5.1 percent of the Gross Domestic Product (GDP) in the current fiscal from 5.9 percent a year ago.
Rajan said the freeing of the diesel prices completely should be effected "as soon as possible" and there was a need to raise the prices in commensurate with the international level.
This would also help India to build confidence on the country's fiscal front that it would not be shattered by some shock towards oil prices, he added.
The former chief economist of the multilateral agency also said India should be kinder to foreign investors as "they they are not the enemy but a necessity in these times".
"We have to be kinder to foreign investors.  We need their money to fund our spending to the tune of four percent of the GDP. That is an alarmingly large number. No doubt, however badly we treat them, they will eventually want to be part of the India's story," Rajan said.
He said India needs foreign investors right now and not in the next 5-10 years from here.
"So, we should open up to more FDI where feasible because it is a safer form of financing. We should bring certainty to taxation towards foreign investors and resist the temptation to level additional retrospective claims," he said in apparent reference to the Vodafone case where the Finance Minister Pranab Mukherjee has proposed to amend the Income Tax Act retrospectively to bring overseas corporate deals under tax net.
Rajan also said India should avoid creating 'tremendous" uncertainty by measures such as GAAR which gives tax authorities unrivalled power.