"Lower crude oil prices are helping consuming countries like us. We need to seize this moment to eliminate diesel subsidies completely," Rajan said addressing a bankers' conference organised here by industry chamber Ficci.
"Typically a lower oil price means a lower CAD (current account deficit), lower oil subsidies and lower inflation. We should take this moment to eliminate diesel subsidies as soon as possible," he added.
Rates of the Indian basket of crude oil fell almost $3 a barrel last week after international prices in August dropped below the psychological barrier of $100.
Benchmark Brent crude fell last Monday to a 14-month low of $99.59 per barrel, dropping below $100 for the first time since June last year because of sluggish demand from major importers like China.
After the third rate cut last month on Aug 31, petrol sells at Rs.68.51 a litre in Delhi, Rs.76.41 in Mumbai, Rs.76.14 in Kolkata and Rs.71.55 in Chennai.
Petrol prices have been deregulated since June 2010.
Conceding that there are significant geopolitical risks with Ukraine and the Middle East in turmoil -- leading analysts to worry that the current low oil prices may be a temporary phenomenon, Rajan said: "We can, of course, wait but the moment will leave us and we may be back to subsidising."
India is on the doorsteps of market pricing of diesel since under-recoveries, or losses, incurred by state-run oil marketers like Indian Oil on selling the fuel below cost, have almost been wiped out by the monthly diesel hikes.
Diesel prices are being raised monthly by 50 paise a litre in line with the government's January 2013 decision, and this month is expected to be the last of the regulation era.
Rates have cumulatively risen by Rs.11.74 per litre in 19 instalments since January 2013.
The under-recovery on High Speed Diesel (HSD) applicable for the first fortnight of September will go down to 8 paise per litre, the petroleum ministry had said on the first of the month.
The under-recoveries for the financial year 2014-15 on the sale of diesel, PDS kerosene and domestic LPG are projected to be Rs.91,665 crore while the figure was Rs.1,39,869 crore in 2013-14.
The government is looking at lowering diesel prices for the first time in seven years if the downward trend in international oil prices and rupee appreciation continues, as there will be over-recovery from this month, a petroleum ministry source told IANS here last week.
While the government is keen to pass on the benefit of cheaper oil to consumers, it is hesitant to free diesel prices just before assembly elections in four states -- Jammu and Kashmir, Maharashtra, Bihar and Jharkhand, the source added.
Diesel currently costs Rs.58.97 in Delhi, Rs.67.26 in Mumbai, Rs.63.81 in Kolkata and Rs.62.92 in Chennai.