Biting the bullet on the politically sensitive issue of fuel prices, the Centre on Friday effected increases of Rs 3/litre in diesel and Rs 2/litre in kerosene, while making LPG cylinders dearer by Rs 50.

Simultaneously, it eliminated the existing 5 per cent customs duty on crude oil and reduced that on refined products (including diesel) from 7.5 per cent to 2 per cent. The excise duty on diesel was also slashed from Rs 4.6 to Rs 2 a litre.

Briefing reporters, the Union Petroleum Minister, Mr Jaipal Reddy, said the “very modest” price increases will help reduce under recoveries of oil marketing companies by Rs 21,000 crore during the current fiscal.

This is lower than the Rs 49,000-crore hit that the Centre will take from the duty cuts – Rs 26,000 crore on import duties and Rs 23,000 crore from the excise on diesel – in the form of revenues foregone for the fiscal.

The projected loss of government-owned oil marketing companies will still say at around Rs 1,20,000 crore. At present, these companies are incurring a Rs 1,66,712-crore loss in revenues owing to subsidies on diesel, domestic LPG and kerosene.

Mr Reddy also said that as of now “there was no need to enhance the price of petrol.”

Oil marketing firms say they are losing Rs 15.44 per litre on diesel, Rs 27.47 per litre on kerosene and Rs 381.14 on the sale of every 14.2 kg domestic LPG cylinder.

The decisions were announced by Mr Reddy after an hour-long meeting of the Empowered Group of Ministers (EGoM), headed by the Finance Minister, Mr Pranab Mukherjee.

The meeting, which was to be held at noon, was put off till late evening to study various options and also to prevent hoarding, sources said.

The EGoM includes the Agriculture Minister Mr Sharad Pawar; the Power Minister Mr Sushilkumar Shinde, the Road Transport Minister, Mr C.P. Joshi; the Chemical and Fertiliser Minister, Mr M.K. Alagiri; and the Planning Commission Deputy Chairman, Mr Montek Singh Ahluwalia.

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