NEW DELHI: Credit rating agency Moody's has cautioned the government against the roll back of diesel price hike and said any such step would circumscribe its subsidy reduction plan.
In its credit outlook report, Moody's said, “If the government rolls back a part of the hike, as some coalition partners and members of opposition parties have demanded, the decline in subsidies will be smaller.”
Last week, the government has raised diesel prices by Rs 5 a litre, the first hike since June 2011.
Moody’s statement coincides with the same day when opposition parties observed nation-wide strike to protest against the price hike and government's move to operationalise its decision on allowing foreign direct investment (FDI) in multi-brand retail.
The price hike would lessen government's subsidy burden by Rs 20,000 crore in the current financial year to an estimated Rs 1.7 lakh crore.
“Still, the subsidy will be 23 per cent higher than the Rs 1.4 lakh crore for the previous fiscal year,” the report added.
Since June 2011, import parity prices, which are used as a reference to calculate the subsidies, have increased by close to 25 per cent on the back of higher international diesel prices and the depreciating rupee.
Moody's also said that the price hike is credit positive for state-owned oil marketing oil refining and marketing companies.