A Prime Minister-appointed expert group today suggested freeing petrol and diesel prices and called for raising LPG rates by a steep Rs 100 per cylinder and kerosene by Rs 6 a litre, recommendations that may not be acceptable to the government battling high inflation.

At current global crude oil prices, deregulating auto fuel pricing would result in a hike of Rs 4.72 a litre in petrol prices and a rise of Rs 2.33 per litre in diesel rates.

Considering the cascading effect an increase in diesel rates would have on food prices, this recommendation may not be accepted while there seems to be a consensus between ministries of finance and petroleum on freeing petrol prices.

"Current petroleum product pricing policy of the government is not sustainable," Kirit Parikh, who headed the panel, which also included Finance Secretary Ashok Chawala and Oil Secretary S Sundareshan, said after submitting the report to Petroleum Minister Murli Deora here.

At present, kerosene is sold at a discount of Rs 18.06 a litre and domestic LPG cylinder at Rs 287.59. The remainder of the gap between retail price (after the suggested increase) and the imported cost of fuel should be met by the government and by upstream firms ONGC and Oil India.

Parikh, did not see much inflationary pressure because of the measures suggested saying the steps like increase in tax rates needed to bridge the fiscal gap between the retail price and actual cost was unsustainable.

Deora gave enough hints that the government will not take any decision in haste saying the report will be "processed" and presented to the government in a weeks time.

Inflation worries

Sources said the government may accept the recommendation of freeing petrol price but may adopt a more calibrated approach on diesel as a rise in transportation cost will further fuel food inflation.

A hike in LPG rates was expected but not as steep as suggested while kerosene may not be touched.

Petrol in Delhi costs Rs 44.63 a litre while diesel is priced at Rs 32.87. A 14.2-kg LPG cylinder costs Rs 281.20 and and kerosene is priced at Rs 9.09 per litre.

Without any increase, Indian Oil, Bharat Petroleum and Hindustan Petroleum are estimated to lose Rs 46,030 crore in revenues this fiscal. As per the current policy, the revenue loss on petrol and diesel is met by upstream firms like ONGC.

Of the Rs 31,574-crore revenue loss expected on LPG and kerosene, the government has so far given Rs 12,000 crore.

He said hikes suggested by the panel in kerosene were in step with the rise in rural per capita income since the last increase was in 1999 (a hike of Rs 2 per litre to Rs 9.09.)

The rise recommended in domestic cooking gas rates was also in proportion to the rise in urban per capital income.

Freeing auto fuel prices, which would promote competition as the present policy has virtually driven private sector out of business, has been suggested after considering its impact on users, he said and added users had the capacity to pay.

"This is a good time to free prices because petrol and diesel prices increases will be very low," Parikh said. "You would not wait for crude to touch USD 120 a barrel again."

"There is no escaping from passing on the international price (to consumers)," he said.