After dithering for the past several weeks (See: Ministers fail to decide on fuel price hike; plan to meet again), the group of ministers finally agreed to raise fuel prices, a sensitive issue with voters, especially in a possible election year.

In its first fuel price hike since June 2006 the government finally assented to raising the price of petrol by Rs2 per litre and diesel by Rs1 to ease the mounting under recoveries of the public sector oil marketing companies, caught between rising crude oil prices and having to sell at administered prices.

The price rise will come in to effect from midnight.

All through the rising oil priced in 2007 when crude prices topped $100 per barrel, the government stayed its hand to protect consumers from higher prices and inflationary pressures of high international oil prices.

The government has been following what it calls 'equitable burden sharing' between itself, the consumers and the the public sector oil companies who have borne the major chunk of the the price rise.

As a result, Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum have projected a combined loss of over Rs71,000  crore on sale of petrol, diesel, LPG and PDS kerosene as the government has not allowed them to raise prices in line with the price of imported crude.

Even in 2006 the government had raised prices after vacillating for nine months It had then raised prices of petrol by Rs4 per litre and diesel by Rs2 per litre, while prices of kerosene and LPG were left unchanged. The government had also brought down the import duty on refined products to 7.5 per cent from 10 per cent earlier, reducing the tariff protection enjoyed by domestic refiners.

Today's decision to hike fuel prices will bring the three government-owned oil marketing companies only partial  relief as petrol is being sold at a loss of Rs8.74 a litre, diesel at Rs9.92 per litre, kerosene Rs20.53 a litre and LPG at a loss of Rs256.35 per cylinder.

India's crude oil purchases have risen by about 170 per cent  from $32.37 a barrel in April 2004.