New Delhi: In a politically and economically crucial and bold decision the government on Tuesday informed Parliament that it was willing to decontrol diesel prices. The government in a written reply told the Rajya Sabha that the decision to decontrol diesel prices has been taken in principle.

However, the government added that retail selling prices would be moderated to insulate the common people.

The decision comes just two days after the government's chief economic advisor Kaushik Basu said that India would see important reforms in the next six months, including on subsidies and may be partial diesel decontrol and FDI in retail.

The other one, which is more difficult politically, is diesel decontrol, Basu said. "May be what can happen is a partial decontrol. This is not a very well defined term. There are different kinds of partial decontrol that you can have."

"What we should ideally do is to have a small subsidy that is fixed per litre. This will partially shelter the consumer but will allow the rise and fall of global price to be mirrored in India. This is essential for market efficiency," Basu said.