Diesel price is likely to be cut by about Re 1 per litre, the first reduction in rates in over five years, while petrol price may be slashed by Rs 1.75.
State-owned oil firms are likely to announce reduction in rates, made possible because of softening in international oil rates, this evening, government and industry sources said.
Under-recovery or the difference between retail price and its imported cost was wiped out and there was an over-recovery of 35 paise a litre from September 16. This over-recovery is now about Re 1 a litre.
While the government had resisted the temptation to cut rates then, prices are likely to be reduced at the fortnightly review due on Tuesday.
Sources said oil ministry is of the view that while the Cabinet Committee on Political Affairs (CCPA) had on January 17, 2013 allowed a monthly increase in diesel price of 40-50 paise per month to wipe out the under-recovery, it wasn't envisaged that there would be over-recovery.
It wants to reduce diesel price to protect state-owned oil companies' market share, which may be lost to private retailers who would be selling diesel in tandem with international prices.
Oil Minister Dharmendra Pradhan is believed to have already written to Prime Minister Narendra Modi on the emerging scenario. Also, it has written to the Election Commission seeking their concurrence for the price decrease in view of state assembly elections in Maharashtra and Haryana.
This would be the first reduction in diesel rates in over five years. Diesel rates were last cut on January 29, 2009 when they were reduced by Rs 2 a litre to Rs 30.86.
Since then rates have only increased as international oil prices climbed. Since January 2013, diesel prices have been raised by up to 50 paise a litre every month to eliminate under-recoveries.
Like diesel, state-owned oil companies had also not changed petrol rates on September 16 though it warranted a 54 paise increase as its benchmark gasoline rates had firmed up in international market.
This is perhaps the first time that retail prices in India are higher than global rates.