Transport fuel prices in India may rise by up to Rs 3.5 per litre if a high-power group led by Finance Minister Pranab Mukherjee that meets in New Delhi on Monday evening permits state-run oil firms to charge market rates for such products.
According to officials, also on the cards could be a hike in prices of kerosene and cooking gas, when the empowered group of ministers meets at 4.30 pm at North Block.
Petroleum Minister Murli Deora, who is a member of this empowered group of ministers on fuel pricing, has already briefed Prime Minister Manmohan Singh and Mukherjee on the issue ahead of Monday's meeting.
Both the finance and oil ministries now feel large subsides on fuels are unsustainable and want action taken on the Kirit Parekh Committee report that has favoured the freeing of transport fuel products pricing for oil marketing companies, officials said.
"The decontrol of fuel pricing - at least for petrol and diesel - now looks certain," an official said, but conceded that some constituents of the United Progressive Alliance (UPA) government, notably the Trinamool Congress, were opposed to such moves.
The meeting comes against the backdrop of the oil ministry's estimate that under-recoveries on fuels - the industry jargon for selling fuel products below cost - have risen to an alarming Rs 72,000 crore ($16 billion).
International crude oil prices rose from $28 per barrel in 2003 to $147 per barrel in 2008 and now quotes at around $75 per barrel (159 litres make a barrel), putting major burden on government resources, as also on state-run oil firms.
The group also includes Agriculture Minister Sharad Pawar, Chemicals and Fertiliser Minister M.K.Azhagiri, Railways Minister Mamata Banerjee, Road Transport Minister Kamal Nath and Planning Commission Deputy Chairman Montek Singh Ahluwalia.
Oil marketing companies had to contend with under-recoveries of Rs 46,051 crore last fiscal, for which the government provided them assistance of Rs 26,000 crore, while the upstream oil companies contributed around Rs 14,430 crore.
The balance had to be absorbed by the oil marketing companies.
During this year, the government has already approved prices of transport prices to be raised twice, so that the fuel subsidy bill does not shoot up from the Rs.90,000 crore ($20 billion) budgeted for the current fiscal.
In the federal budget for this year, presented Feb 26, the finance minister hiked petrol and diesel prices by Rs 2.71 and Rs 2.55 a litre, respectively. Then July 2, their prices were raised by Rs 4 and Rs 2 a litre in that order.
As a result, petrol in the national capital, for example, costs Rs 47.93 per litre, while diesel costs Rs 38 10 per litre.