Govt mulling Rs 5 a litre hike in diesel prices as fuel subsidy bill balloons

Loss on subsidised fuel sale could touch Rs 1.8 lakh crore, says Oil Minister M Veerappa Moily. Reuters

Diesel prices may be hiked by Rs 3-5 per litre, kerosene by Rs 2 and LPG by Rs 50 per cylinder as Oil Minister M Veerappa Moily urged Prime Minister Manmohan Singh to take steps to tackle a record Rs 180,000 crore of losses arising from dipping rupee and surging oil rates.

Moily, who had on Thursday met Finance Minister P Chidambaram on the issue, on August 30 wrote to Singh saying without a price increase the government will have to shell out a record Rs 97,500 crore to subsidise diesel and cooking fuel.

"If the present position persists, the total under-recovery (revenue loss) would reach to a level of Rs 180,000 crore in the current financial year as compared to Rs 161,000

crore during 2012-13," he wrote to the Prime Minister.

A 25 per cent drop in rupee value has resulted in losses on diesel sales widening to Rs 10.22 per litre despite prices being raised by 50 paise a litre every month since January.

Diesel price may be hiked by Rs 3 a litre after monsoon session ends

This coupled with Rs 33.54 a litre loss on kerosene and Rs 412 on sale of ever 14.2-kg cooking gas (LPG) cylinder, the total revenue loss this fiscal comes to Rs 180,000 crore, he said adding even after upstream firms like ONGC chip in Rs 70,500 crore, a gap of Rs 97,500 crore would be left.

An increase in rates is possible after monsoon session of Parliament ends on September 6.

Moily, who sent an almost identical note to Chidambaram, said a one rupee increase in diesel price will cut loss by Rs 4,522 crore in remainder of current fiscal while a Rs 3 per litre increase would trim losses by Rs 13,565 crore. If rates are raised by a one-time Rs 5 per litre, the losses would be cut to Rs 29,390 crore.