The government is considering a 3-rupee to 5-rupee hike in the price of diesel, which accounts for more than 40 percent of fuel use, government officials said last week, as the country looks to cut import costs by nearly $20 billion to trim a record current account deficit.
On Tuesday, the partially convertible rupee, the worst performing currency among the major global economies, dropped as much as 3.1 percent to 68.12 per dollar.
India's fiscal deficit during the 2012/13 fiscal year ending March fell to 4.9 per cent of the country's gross domestic product, compared with 5.8 percent a year ago.
Investor confidence has evaporated amid fears over the rising cost of funding India's gaping current account deficit, prompting New Delhi to delay plans to raise much-needed funds through partial privatisations, finance ministry sources said.
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Chidambaram, speaking to reporters, also said the fundamentals of the Indian economy had not changed and asked investors to wait for the April-June quarter growth numbers due at the end of the month.
In January, India allowed fuel retailers to raise the price of subsidised diesel every month and asked bulk buyers to pay market rates.
Net tax receipts for the first three months of 2013 touched Rs 1.02 trillion.
Government sources say India could consider raising the policy repo rate if the rupee falls towards 61-62 to the dollar.
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India has in recent months stepped up enforcement of tax collections as it looks to raise revenue to help plug its widening fiscal deficit.
The Reserve Bank of India announced measures late on Monday to curb the rupee's decline by tightening liquidity.
The bank is due to review the monetary policy on July 30.
Media has raised the issues that new pricing to benefit Reliance Industries.
India's gold imports could pick up in the next few months after slumping 81 percent in June as falling prices spur buying, a government source said, adding to New Delhi's anxiety over a record-low rupee and a wide current account deficit.
India sharpened measures to curb imports of the yellow metal by hiking the import duty and restricting consignment imports, after shipments jumped to more than 300 tonnes in April and May.
The rupee fell to an all-time low of 61.21 on Monday, sparking speculation about potential measures from the Reserve Bank of India, including providing a special window for oil companies to buy dollars.
Both the countries have increased prices of gas recently.
The Reserve Bank of India has cut repo rates, the rate at which it lends money to banks, by 75 basis points since January this year, but most banks have not lowered lending rates.
It may widen because of money outflows.
India's current account deficit hit a record high 4.8 per cent of gross domestic product in the fiscal year that ended in March
Rupee, he said, is not in shambles and "we should not be overtly pessimistic".
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