India increases price of diesel fuel

India’s decision to increase diesel fuel prices has been met with swift and intense backlash from various sectors. The 14% price increase on diesel fuel, which went into effect in early September, is the first of several increases scheduled within the next 15 months. Diesel fuel is heavily subsidized in India, and economists say that if the government decides to reverse the price increase partially by shaving off one rupee from the Rs5 per liter (US$0.09) increase, it would still be sufficient as a necessary first step in the government’s efforts to narrow a large budget deficit of 5.8% of gross domestic product (GDP).
Economists agree that slowly increasing the price of diesel fuel could send a positive signal to international investors and rating agencies. It would also help buoy the sagging rupee, which would in turn help stabilize the economy. “It’s quite a bold step,” said Siddhartha Sanyal, chief India economist for Barclays. “It’s important to note the government is prioritizing fiscal consolidation.”
However, if the government under Prime Minister Manmohan Singh gives in to the public outcry and reverse the price increase entirely, analysts believe that it would mean that the toughest overhauls on the governments agenda, such as allowing investment from international supermarkets including Wal-Mart Stores Inc., will most likely get bogged down as well. (September 14, 2012)