NEW DELHI: Biting the bullet, the government today hiked diesel prices by a steep Rs 5.62 per litre and restricted the supply of subsidized cooking gas to 6 cylinders per household in a year to fetch an additional Rs 20,300 crore. It, however, left kerosene rates untouched and spared an increase in petrol price by cutting excise duty by Rs 5.50 per litre.

Reeling under the criticism of a policy paralysis and facing an urgent need to cut down the ballooning oil subsidy of Rs 187,127 crore, the cabinet committee on political affairs chaired by Prime Minister Manmohan Singh took the decisions which have come under strong attack from allies like TMC and SP.

TMC and DMK ministers kept away from the meeting. The biggest-ever hike of Rs 5 hike in diesel prices excluding VAT or local sales tax will make the commodity sell at Rs 46.95 per litre from tomorrow in the national capital as against Rs 41.32 a litre currently. The CCPA decided that each household will get 6 cylinders of 14.2-kg per annum at the subsidized rate of Rs 399 and any requirement beyond that would have to be procured at the market rate of Rs 746 per bottle.

Diesel prices were last hiked by Rs 3.37 per litre in June last year. State-owned oil firms were losing about Rs 6 per litre on petrol, a commodity which was deregulated in June 2010 but rates of which have rarely moved in tandem with cost.

Even after the hike and restrictions on LPG, the government will be left with an under-recovery of Rs 167,000 crore this fiscal which is more than Rs 138,541 crore of 2011-12. The decisions to increase price of diesel and capping of LPG cylinders were taken in the backdrop of projected massive under-recoveries of Rs 1.87 lakh crore for the current fiscal on account of high international crude oil prices and sharp depreciation of rupee against US dollar.

As regards petrol, the release said, "No increase in the price of Petrol, although the current under-recovery on petrol is about Rs 6 per litre. The consequent loss to the oil marketing companies will be offset through reduction in excise duty on petrol by Rs 5.30 per litre."

The capping of subsidized LPG cylinder to six in a year, it said, will help in reducing the under-recovery by about Rs 5,300 crore for the remaining part of the financial year.

However, it added that the under-recovery on sale of LPG during 2012-13, even after the cap, is estimated to be above Rs 32,000 crore.

The release further said that PDS kerosene, which is being sold at Rs 14.83 per litre (at Delhi), will result in under-recovery of Rs 32,000 crore in the current fiscal.

The parliamentary standing committee on petroleum & natural gas had earlier suggested capping of subsidized LPG cylinders to 6 per annum.

The capping supply of subsidized LPG cylinders at six per annum, it added, "will lead to saving of subsidy on one third of the total LPG cylinders. Two third of the total cylinders will still be supplied at subsidized rate".

About 44 per cent of the total LPG users, who consume six or less cylinders per annum, will not be affected by the government's decision. Capping of cylinders, it added, "will also lead to reduction in misuse/diversion of subsidized cylinders".

The decisions, the release added, will still leave an under-recovery of about Rs 1.67 lakh crore in the current fiscal, up from Rs 1.38 lakh crore in the previous fiscal.