"We are all worried about rupee depreciation. All of us should all do our best to reduce the tension on the economy," says Mr Moily

In the background of rising crude oil prices in the international market due to war clouds looming over Syria and a continued fall in the value of the rupee, Petroleum and Natural Gas Minister Veerappa Moily met Finance Minister P. Chidambaram on Thursday.

The state-run oil marketing companies (OMCs) are already pressuring the government for a steep hike in diesel prices at Rs. 5 a litre in order to compensate for the massive losses being incurred by them on sale of this subsidised product. A fortnightly price review meeting is likely to be held on August 31 to work out a hike in the price of petrol, which has been de-controlled since June 2011. “As the rupee has depreciated considerably and crude oil price has risen sharply, petrol is likely to see a hike of Rs. 2 to 3 a litre,” a source in an OMC said.

The government is mulling over a hike in the price of domestic LPG to bring down the rising subsidy bill. “The loss on sale of subsidised diesel and cooking fuel will rise to at least Rs. 1,40,000 crore from last month's estimate of Rs. 1,23,000 crore,” the sources said.

Prime Minister Manmohan Singh is also understood to have conveyed his concern to Mr. Moily over the burgeoning fuel subsidy bill and asked him to work out a plan to cut down fuel import bill by $25 billion.

It is learnt that Mr. Chidambaram told Mr. Moily that it was not possible to cover the losses being incurred on sale of petroleum products and there was no alternative to hiking prices.

The Petroleum Ministry is already considering a one-time steep hike in diesel prices and also on LPG but only after the conclusion of the monsoon session of Parliament on September 6.

“We are all worried about rupee depreciation. All of us should all do our best to reduce the tension on the economy. We are discussing how we can conserve energy and reduce fuel consumption so that imports are cut,” Mr. Moily told reporters after the meeting.

Mr. Moily said under-recoveries, which were estimated at Rs.1,23,000 crore last month might go up. “We are addressing that issue. We have to ensure that we help the Finance Ministry reduce CAD. The crisis in Syria will have an impact on international prices. India is 79 per cent dependent on imports to meet its oil needs and rupee depreciation means it has to pay more”

Losses on diesel sales at government-controlled rates have widened to Rs. 10.22 a litre from Rs. 9.29 at the beginning of the month and less than Rs. 3 a litre in May, even as prices are raised by 50 paise a litre every month. Besides, the oil companies lose Rs. 33.54 a litre on kerosene and Rs. 412 a 14.2-kg LPG cylinder.