Diesel price move to test stomach for reforms

India's decision late on Thursday to raise diesel prices by 14%, the first such move in 15 months, is aimed at shoring up a weakening fiscal position, but has already come under intense fire from both the opposition and allies within the ruling Congress party-led coalition.

While the move will add to inflation in the short term, it will ultimately make it easier for the RBI to loosen monetary policy and help revive investor confidence damaged by political gridlock in New Delhi

"It is a bold move, and will send a strong signal to the Reserve Bank of India on the government's efforts at fiscal consolidation," said Anubhuti Sahay, an economist at Standard Chartered Bank in Mumbai.

While most other G20 central banks are trying to ease monetary conditions to counter a global slowdown, the RBI has consistently flagged high inflation as a key risk to an economy where growth is faltering.

Data due at 0600 GMT on Friday is expected to show wholesale prices rose 6.95% year-on-year in August, slightly higher than July's 6.87%, according to a Reuters poll of 32 economists.