A diesel price hike is being considered before the planned share sales of Indian Oil Corp and Oil and Natural Gas Corp (ONGC), Oil Secretary S Sundareshan said on Monday.
"It is extremely difficult for the government to pass on the entire burden to the consumers. We will have to go before the Empowered Group of Ministers (EGOM)," he said.
Sundareshan added he hoped the EGOM would meet before the sale of stakes in IOC and ONGC, which should be in the last quarter of the current fiscal year ending in March.
He said full deregulation of diesel prices was not possible at the moment as international oil prices have risen.
India ended controls on petrol prices in June and raised prices of diesel, cooking gas and kerosene. It also said then diesel prices would eventually be freed to boost public finances.
"We were hoping crude prices would soften and there would be reasonable grounds for passing on a small additional burden to the consumer ... Unfortunately crude prices have been consistently going up since June," Sundareshan said.
Analysts have said uncertainty over diesel pricing and how subsidies are split between companies and the government could deter investors from the sale of further shares in the two companies.
Raising diesel prices could stoke inflation but may encourage more competition into the retail market. Diesel accounts for a third of the oil demand while petrol's share is barely 10 per cent.