The rupee fell to a fresh record low on Thursday as a sharp increase in petrol prices failed to lift investor sentiment even as it fuelled expectations New Delhi might soon take the more politically fraught step of raising diesel prices.

India's hefty subsidy bill for diesel, kerosene and LPG is a budget-buster that forces heavy government borrowing and weighs on investor sentiment. High global energy prices and a declining rupee, meanwhile, exacerbate the current account deficit in a country that imports 80 per cent of its oil.

Oil companies lose about 14 rupees ($0.25) per litre on diesel, which is much more widely used than petrol, and a weakened government has been unable to push through a price rise or allow full market pricing in the face of political opposition, including from within the ruling coalition.