Raising fuel prices would stoke inflationary pressures, already at levels uncomfortable enough for voters to slam Congress in recent municipal elections in West Bengal.
India's food inflation accelerated in mid-June and further inflationary pressures could lead the central bank to raise interest rates ahead of a July 27 policy review.
"Yes, a rise in petrol and diesel prices will be reflected in the fuel inflation numbers and there will also be second-rung impacts reflected in transport costs, etc," said Atsi Sheth, chief economist at Macro-Sutra in Mumbai.
"The fiscal implications, too, regarding the subsidy bill, are positive. On the monetary front, I don't see the Reserve Bank of India (RBI) reacting to this as an immediate trigger."
"Global commodity prices, even before this hike, have been contributing to high inflation and the RBI will, therefore, consider all these factors and will not react solely to this decision," he added.
Any move to remove price controls will help Reliance Industries(RELI.BO), which operates the world's biggest refining complex but exports most products as the local market is dominated by state firms that sell cheap fuel, helped by government subsidies.
Finance Minister Pranab Mukherjee said earlier this week he believed a strong harvest following a normal monsoon would tame food prices.
Indian farm ministry officials on Friday gave their most optimistic forecast yet for the annual rains -- which irrigate 60 percent of the country's farms -- saying the June-September rainfall would likely be 102 percent of the long-term average.
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