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.
