"The recent increase in diesel prices is an important step in the right direction," he said while addressing the meeting of the Full Planning Commission which was called to approve the 12th Five Year Plan document.
The Prime Minister also made a case for comprehensive review of energy policy saying it was vital for energy security of the country.
Energy, Mr Singh said, "is a difficult area where policy needs a comprehensive review. We are energy deficient and import dependence is going up. It is vital for our energy security that we increase domestic production and also increase the energy efficiency.
"Rational energy pricing is therefore critical. Our energy prices are out of line with the world prices", he added.
The government had recently increased the price of diesel by Rs. 5 a litre and capped the use of subsidised LPG cylinder to six in a year per family, evoking sharp protests all over the country.