Oil minister Mr Jaipal Reddy said that government will gradually increase diesel prices in small doses at an "appropriate time" to help oil companies that are selling the fuel below market rates and insulate consumers from a sharp increase.

With inflation showing signs of abating, the government has room to consider raising prices of diesel, which currently sells at 11.30 below international rates, but Mr Reddy said the oil ministry will be cautious. He said that "Our economy largely runs on diesel and it will have a cascading effect if prices are increased at once. Inflation is now under control and we have to talk to state governments before we decide.”

Mr Reddy said the extent of the price hike would be determined in consultation with oil companies, which are closely monitoring market volatility and the value of the rupee.

State run oil marketing companies such as Indian Oil Corporation and Bharat Petroleum are expected to make a revenue loss, or under recovery, of over 121,000 crore during this financial year, compared to 78,000 crore in 2010-11. While a slew of recommendations including differential pricing were made by oil retailers, the minister turned it down.

(Sourced from ET)