Diesel subsidy cut in focus as trade deficit widens: Rajan

Haunted by the widening current account deficit of the country, the government is thinking in terms of freezing diesel subsidies altogether. The move comes after the Budget 2013-14 proposed an increase in the excise duty on sports utility vehicles that are mostly diesel-run.

Finance ministry's chief economic advisor Raghuram Rajan said the widening current account deficit leaves the government with no other option than sell diesel at market prices.

Rajan's remarks came at the convocation address of RBI-run National Institute of Bank Management in Pune today.

''At some point, we should think about freezing the subsidy on diesel at the current levels until it reaches the level of world prices so that the budget is not exposed to the risks of an increase in global oil price,'' Rajan said.

India has built up record-high current account deficit, which now stands at over 5.4 per cent of the country's gross domestic product (GDP). With the economy increasingly being dependent on foreign capital for investments, Rajan said, any reversal of the fund flows could make the country vulnerable.

India's current account deficit, which was over 4.2 per cent in the 2011-12 financial year, widened to 4.6 per cent of GDP in the first six months ended September 2012 as export growth slowed more sharply than imports and is expected to up further at around 5.4 per cent in 2012-13.