Credit ratings agency Moody's Investor Services has warned the government that any rollback of the diesel price hike would limit its subsidy reduction plan.
Last week, the government hiked the price of subsidized diesel by Rs 5 a litre, in a move that triggered a wave of severe criticism from the BJP-led Opposition as well as some of its estranged allies like Trinamool Congress.
The opposition and some key allies have been pressuring the government to roll back a part of the diesel price hike. But, Moody's cautioned the government against any such move.
In its credit outlook, the credit rating agency 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."
It added that the total amount of the fuel subsidy would exceed further if the rupee depreciates or international prices of diesel hikes further.
Following the diesel price hike, the fuel subsidy for the current fiscal year is estimated at Rs 1.7 lakh crore (Rs 1.7 trillion) as compared with previous estimate of Rs 1.9 lakh crore. Nevertheless, the subsidy will be 23 per cent higher than the last year's figure of Rs 1.4 lakh crore.
Oil companies, including Indian Oil Corp. and Hindustan Petroleum Corp., are currently losing nearly Rs. 485 crore a day on sale of subsidized diesel, LPG and kerosene.