• The Reserve Bank on Tuesday said the government should deregulate diesel prices in order to contain the trade deficit, which is expected to widen to $ 160 billion during the current fiscal.
  • While petrol prices are market-linked, the government decides the rates of LPG, kerosene and diesel, which usually results in a large budgetary expenditure on subsidies.
  • The central bank further said the current levels of domestic prices of petroleum products do not reflect international prices.
  • According to the financial stability report (or FSR) of the RBI released earlier, the December trade deficit gap for the year would broaden from $155 billion to $160 billion, a significant rise from $104.4 billion in the previous year.
  • It is estimated that the higher expenditure on petroleum subsidy could drive up the fiscal deficit by around 0.8 percentage points of the GDP for 2011-12.