(Adds official comment, details)
NEW DELHI, Jan 17 (Reuters) - State-run Indian oil marketing
companies can now raise diesel prices in line with increases in
global crude oil prices, Oil Minister Veerappa Moily said on
Thursday, a move that could help the government reduce its vast
"Oil marketing companies have been allowed to raise diesel
prices in small quantities over a period of time," senior oil
ministry official G. C. Chaturvedi said. He did not give details
about the time-frame.
India's policy to subsidise retail prices of fuels such as
diesel, which accounts for about 40 percent of refined fuel
consumption, is a major drain on the budget.
Ratings agencies threatened last year to strip India of its
investment-grade credit rating if the government did not take
steps to rein-in a widening fiscal deficit. Finance Minister P.
Chidambaram has repeatedly vowed that the deficit will not
exceed 5.3 percent of GDP this financial year.
India imports more than 80 percent of its fuel needs. The
government liberalised petrol prices in June 2010, but has often
prevented them from being raised to reflect rising oil prices on
Fuel consumption in India rose 5 percent in the last fiscal
year, its fastest since 2007/08.
Shares in oil marketing companies rose while bond yields
fell after Moily's announcement.
Hindustan Petroleum Corp shares surged 5.2 percent
while Oil and Natural Gas Corp gained 4.3 percent.
The 10-year yield fell as much 3 basis
points to 7.85 percent.
The rupee rose to 54.47/4950 to the dollar from
around 54.63/64 previously.
(Reporting by Manoj Kumar; Editing by Frank Jack Daniel and