India plans to free diesel prices to reduce subsidy

New Delhi: India will completely free diesel prices from government control following last week's deregulation of gasoline rates to reduce the nation's subsidy bill, Prime Minister Manmohan Singh said.

"The fact that petrol prices have been set free, the same is going to be done to diesel prices," Singh told reporters while returning from the Group of 20 meeting, according to an e- mailed statement from the government yesterday.

"Subsidies for the pet-roleum products have reached a level which is not connected to sound financial management of our economy." India increased diesel prices by Rs2 or 5.2 per cent a litre on June 25 and will eventually free the fuel from state control, according to Oil Secretary S. Sundareshan.

Gasoline prices were fully deregulated and rates for cooking fuel and kerosene were increased.

The changes were "much-needed reforms," Singh said.

The government aims to cut the budget deficit to 5.5 per cent of gross domestic product in the year ending March from an estimated 6.9 per cent last year. India's economy grew 8.6 per cent in the three months ended March 31.

India gave Rs260 billion as compensation to state-run refineries including Indian Oil Corp, the nation's second-largest, in the year ended March 31 as partial compensation for selling fuels below costs.