"The perception of the rating agencies that India cannot raise diesel prices will change. Rating agencies should take a good look at it. The fiscal space which has been created is quite substantial", he told reporters.
The government, Ahluwalia further said, has done the "right thing" by raising diesel price by Rs 5 per litre and restricting supply of subsidised LPG cylinders to six per family per year.
"We have done the right thing. The rest is up to the RBI (to do)", he said referring to the forthcoming mid-quarterly review of monetary policy to be announced on Monday.
India Inc has been demanding cut in interest rate to boost economic growth which had slipped to nine-year low of 6.5 per cent in 2011-12.
Global rating agencies including Standard and Poor's and Fitch had threatened to lower India's sovereign rating to speculative grade citing reasons like rising fiscal deficit and policy paralysis.
"There is no doubt in my mind that the adjustment in diesel price represents creation of fiscal space...One of the problem people earlier felt was that the fiscal situation of the country lacks credibility because there was a sort of impression that diesel prices cannot be raised. The signal that has been given is very good", Ahluwalia said.