The government Wednesday hiked petrol and diesel prices by Rs 5 and 3 a litre and that of LPG by Rs 50 a cylinder, while sparing kerosene from any increase.

The Union Cabinet chaired by Prime Minister Manmohan Singh took a slew of measures to offset the surging global oil prices that had put the national oil companies under acute pressure. The increase in prices would be effective from Wednesday midnight, Petroleum Minister Murli Deora said.

The price hike would help oil companies to earn Rs 21,123 crore more.

As part of measures, the government decided to take a burden of Rs 94,601 crore for which it will issue oil bonds to state-run BPCL, HPCL and IOC which were reporting a daily loss of over Rs 720 crore.

In addition, the oil producing PSUs like ONGC would shell out Rs 60,000 crore through discounts to state-owned oil refiners and marketing companies.

Despite all the measures, there would still be a gap of Rs 29,000 crore, Revenue Secretary P V Bhide told reporters briefing about the decisions taken at the Cabinet. 

The government also announced customs and excise duty cuts on petroleum products with immediate effect. These cuts would entail a revenue implication of Rs 22,660 crore for the remaining 10 months of this fiscal.

Bhide said customs duty on crude, which was 5 percent hitherto, has been abolished.

He also said petrol and high speed diesel (HSD) will attract customs duty of 2.5 percent against the existing 7.5 percent. Excise duty on these two petroleum products is reduced by Re 1 per litre. At present, petrol attracts excise duty of Rs 14.35 a litre and HSD Rs 4.6 a litre.

Customs duty on other petroleum products like ATF and Naphtha has been cut from 10 percent to 5 percent. When asked whether states will also be told to cap sales tax on petrol and diesel, the Revenue Secretary said there is no move from the Finance Ministry side on this issue.

However, sources said the prime minister's address to the nation later in the day may carry appeal to states in this respect.

Petrol and diesel prices were last raised in February when the Indian basket of crude oil was at $67 per barrel. Today, it is at $124 per barrel - the same level as international crude prices which were trading at $124.01 a barrel in New York, down over $11 a barrel since its May 22 peak amid concerns of inflation in the US.

Wednesday's decision followed week long meetings the prime minister had, including four where UPA Chairperson Sonia Gandhi was also present.