Oil firms can now effect small changes in the price of diesel. Sources told NDTV Profit that a price revision is likely next week.
Finance Minister P. Chidambaram said he estimated that the fuel subsidy bill will remain the same as earlier because it was difficult to specify either the quantum or the timing of a price increase.
Finance Ministry sources told NDTV Profit that small diesel price hikes were unlikely to hurt inflation. Earlier studies have shown that gradual price hikes do not impact inflation significantly.
Officials of the three oil marketing companies - Bharat Petroleum, Hindustan Petroleum and Indian Oil - are meeting today, although an immediate decision on a price hike is unlikely.
State-run refiners currently sell diesel -- the most consumed fuel in India -- at a loss of Rs. 9.28 per litre.
The oil companies can still continue to claim subsidy from the Finance Ministry, sources said.
Stocks of oil companies shot up after the news. HPCL shares were up 7 per cent at Rs. 348.50 while IOC jumped 5 per cent to Rs. 310.70 at 1.35 p.m. BPCL shares traded 4.5 per cent higher at Rs. 398.8.
The government also hiked the cap on subsidized LPG cylinder per year to nine from six. However, this rule will apply only from April 2013. The Election Commission has permitted the government's proposal for an increase in the cap of subsidised LPG cylinders.
For the remaining period of the current fiscal year ending March 31, 2013, the cap has been increased to five from three.
State-owned Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp have together lost Rs. 85,586 crore on selling diesel, domestic LPG and kerosene at below market rates in the first six months of current fiscal. Of this, Rs. 52,711 crore was on account of losses on diesel.
With inputs from PTI