The government today announced an increase in the price of petrol by Rs5 a litre, diesel by Rs3 and LPG by Rs50 per cylinder, along with a reduction in customs and excise duties on crude oil and imported fuel.
 
The price hike is effective midnight today.

The government, however, kept the price of kerosene meant of the public distribution system unchanged in the face of strong opposition from its Left allies and a general election due next year.

The government announced an across-the-board five per cent cut in customs duties, bringing rates on crude oil to zero, on petrol and diesel to 2.5 per cent and on other products like ATF and naphtha for non-fertiliser use to five per cent.

Besides, excise duty on petrol has been cut by Re1 a litre to Rs13.45 and on diesel to Rs3.60.

The government will also increase the crude oil subsidy to oil refiners by upstream companies like ONGC and OIL to Rs45,000 crore this fiscal from Rs25,708 crore last year.

Petroleum secretary M S Srinivasan said the measures would give fuel retailers an additional revenue of Rs21,153 crore, while the government will forgo Rs22,660 crore of revenue by way of duty cuts.

He also denied reports of fuel rationing, saying all of the genuine demand will be met. "There is no proposal to restrict supply of domestic LPG per family. It is utterly wrong," Srinivasan said. "You can burn as much gas as you need."

The decision to raise fuel prices by around 10 per cent comes after state-run oil marketing companies threatened to stop production and import of fuels altogether with crude prices shooting above $125 a barrel and the government continuing to deny them compensation for subsidised sale of fuels.

The price hike will bring the three state-owned oil marketing companies – Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation - 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.

The three companies have projected a combined revenue loss of Rs245,305 crore this fiscal.

"We were left with no option," petroleum minister Murli Deora said after a meeting of the cabinet committee on political affairs.

"Due to the relentless increase in international oil prices, it has now become necessary for the consumer to shoulder a small part of the increased burden, through a marginal hike in prices."

The Left parties and business leaders have opposed the fuel price hike, although for different reasons.

The Left Front and the Trinamool Congress have called for a bandh in West Bengal on Thursday and Friday.

''Today's decision by the UPA government passing a tremendous burden on the people, which it could have avoided, has compelled us to call the bandh," Left Front chairman Biman Bose said.

The price hike would jack up prices of essential commodities further and push the inflation to as high as 10 per cent, he said, adding the government opted to ignore the alternative proposals of imposing a tax on private oil companies and oil exploration companies submitted by the Left parties.

The Trinamool Congress, which called for a shutdown on Friday said the fuel hike was 'unfortunate and unprecedented.'' and avoidable. ''The Left is supporting the central government and in the same breath is opposing the government's move to take such a decision. Why this cheap drama?" Trinamool Congress Chief Mamata Banerjee asked.

Prime minister Manmohan Singh will address the nation at 8 pm to explain the rationale behind the price hike.

Crude prices were ruling at $124.01 a barrel in New York, down $11 from its 22 May peak of over $135 a barrel.

India, which imports nearly 75 per cent of its crude oil requirements and keeps control on fuel prices, last raised fuel prices on 14 February when it announced a hike in the price of petrol by Rs2 per litre and diesel by Rs1 a litre.