Though a decontrol of diesel prices is important it should be done only after inflation shows a decline, said Dr C Rangarajan, Chairman, Economic Advisory Council to the Prime Minister.

Speaking at the banking conference, Bancon 2011 here on Saturday, Dr Rangarajan said, “A decontrol of the prices of petroleum products is essential. Oil marketing companies should have the freedom to fix the prices in a way that domestic prices reflect the international crude prices. But the timing is important. It should be done at a time when inflation starts declining.”

He expressed optimism that inflation, which hit a high of12.21 per cent for the week ended October 22, will start declining by December-January. “Inflation may stay high for one or two months. But it is expected to decline by December or January. By March 2012 it is expected to moderate to 7 per cent,” he said.

Admitting that inflation in India was of the highest in the world, he said that though it was triggered by the prices of food grains and fruits and vegetables earlier, it had now become generalized. The rise of manufacturing inflation to 7.4 per cent was a trigger for RBI to hike rates to curtail demand. “Once inflation shows signs of decline a reversal of monetary policy will be possible,” he remarked.

Commenting on the issue of providing new banking licenses for large corporates he said, “The issue of whether corporate business houses should be provided new banking licenses or not is a debate that can be taken up later. If there is a good application coming from a non-corporate business segment, including NBFCs, it should be considered.”