The government will ease controls on diesel prices, Prime Minister Manmohan Singh said, signalling the government's determination to continue energy-pricing reforms despite strong protests from opposition parties.
Last week, the government allowed market-determined prices for petrol, which accounts for about 10 percent of the oil sold in Asia's third-largest consumer.
"With regard to petroleum prices, the fact (is) that petrol prices have been set free, the same is going to be done to the diesel prices...," a government statement quoted Singh as telling reporters while returning from the G20 nations summit in Toronto.
Analysts say market prices for fuel may stoke inflation but Singh said the government was concerned that fuel subsidies would hurt the fiscal situation.
"What we need is to do the right things (for) our country. The subsidies for the petroleum products have reached a level which is not connected to sound financial management of our economy," Singh said.
"So it is taking that into account that this decision has been taken to put some burden on the common people, but I think it is manageable."