India has announced a sharp rise in the price of diesel, the first increase in more than one year, in an attempt to cut the country's budget deficit.

印度宣布提高柴油价格，试图以此削减国家财政赤字，这是近一年多以来柴油价格首次上涨。

The government said it would raise diesel prices by 14% from Friday.

India subsidises the prices of diesel, cooking gas and kerosene（煤油，火油） oil to help the poor and keep inflation in check.

However, this has resulted in a growing budget deficit and there have been concerns the policy may be hurting India's overall economic growth.

The government has been under increasing pressure to cut the subsidies and bring down the deficit.

"It is the first credible step towards fiscal consolidation（巩固，合并） that the government has taken, something for which the market has been waiting for long," said Manish Wadhawan, head of rates at HSBC.

The government said that it would also limit the sale of subsidised cooking gas to six cylinders a year per consumer.

Ratings boost?

India's economy has slowed in recent months and there have been fears that slow growth coupled with high inflation and a rising deficit may hurt investment in the country.

Earlier this year, ratings agency Standard & Poor's warned that India could lose its investment grade status if conditions in the country did not improve.

Another ratings agency, Fitch, cut its outlook for India's economy to negative in June.

Analysts said the decision by the government was likely to ease fears about a rating downgrade for Asia's third-largest economy.

"The government has shown it can take hard decisions, very difficult decisions," said C Rangarajan, chief economic advisor to the Indian prime minister.

At the same time the price rise has raised hopes that India's central bank, the Reserve Bank of India (RBI), may cut interest rates to spur growth.

"All these days [the] RBI was insisting [the] government should take steps to control [the] fiscal deficit, after this move there are all possibilities that the central bank may consider reducing interest rates," said RK Gupta, managing director at Taurus Mutual Fund.

"This is very good news for the market. Foreign institutional investors will be taking this as a positive step. This will also improve the country's ratings," he added.
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