Govt should end fuel price control - ministry

By Nidhi Verma

NEW DELHI (Reuters) - The government needs to end controls on prices of petrol and diesel to curb fuel demand, the finance ministry said in its annual economic survey on Thursday.

The announcement comes a day after Asia's third-largest oil consumer raised petrol prices by 10 percent and diesel by about 6.5 percent, but the increase was still smaller than needed for ending state controls.

The survey, presented to parliament ahead of an updated budget on Monday, listed energy policy issues that needed to be addressed.

These included: "Decontrol petrol and diesel prices. Develop a policy response system and financial buffer for use when diesel prices rise above the oil equivalent price of $80 a barrel."

But analysts said there were doubts the government would liberalise price policy.

"In spite of the price revision, government is unlikely to move towards a completely deregulated pricing policy for diesel and petrol," said Amitendu Palit, an economist with the National University of Singapore.

"Given the sensitivity of petroleum prices to inflation, government is not expected to immediately let go of its capacity to intervene," he said.

India's consumer price index declined to 8.63 in May from 8.70 percent in April.