With pressure from global rating agencies such as Fitch and Moody’s, the government raised the price of heavily subsidized diesel and also to tackle the 5.3 percent fiscal deficit which has been looming large. Experts had varied reactions to this move.
While some of them commended the decision stating that it will send a strong signal to the RBI and that it will give room to cut rates in the future; others warned about keeping fuel subsidies in check. As long as the oil price goes up, fuel subsidies would increase as well.
To ensure this, the price of fuel has to be in line with the global crude oil prices and the dollar-rupee exchange rates.
It is reported that India's fiscal deficit is the widest among major emerging economies because of high spending on food, fuel and fertilizer subsidies.