Diesel, kerosene and cooking gas LPG prices may be hiked soon as the government considers Vijay Kelkar Committee recommendations on cutting fiscal deficit.

The Kelkar Committee, which was appointed by Finance Ministry to suggest a roadmap for fiscal consolidation, has suggested immediate hike in fuel prices and complete deregulation of diesel prices by start of 2014-15 fiscal. It also suggested raising kerosene and LPG rates.

"That (Vijay Kelkar committee recommendation on deregulating diesel and raising kerosene and LPG rates) is a proposal. It is still at proposal stage. The (Petroleum) Ministry is only processing that report and we are yet to take a decision," Oil Minister M Veerappa Moily told reporters here.

Though the Minister did not indicate a price hike soon, officials speaking on condition of anonymity said a proposal based on Kelkar Committee recommendations will be taken to Cabinet soon and rates will go up if it is approved.

The panel had in September recommended "immediate increase in Petroleum prices. This should be continued in the next year in such a way that the prices of diesel are fully deregulated by the start of 2014-15. The prices of kerosene and LPG also should be revised regularly to keep the subsidy levels at affordable levels."

Price of diesel, which currently costs Rs 47.15 per litre in Delhi, was last revised on September 14 when it was hiked by a steep Rs 5.63 per litre. Kerosene rates have not changed since June 2011 and it currently costs Rs 14.79 per litre in Delhi.

State-owned oil companies currently sell diesel at a loss of Rs 10.16 per litre, kerosene at Rs 32.17 a litre and LPG at Rs 490.50 per 14.2-kg cylinder. Moily said the government was also considering raising the cap on supply of subsidised cooking gas (LPG) cylinders to 9 per household in a year from current limit of six.

The hike in supply of subsidised cylinders would lead to an additional Rs 9,000 crore of subsidy payout over and above the Rs 155,313 crore that the government is currently having to deal with on sale of diesel, LPG and kerosene at below market price.

Since the Finance Ministry is unwilling to foot this, the only option left is to raise fuel prices, officials said adding a hike in diesel, kerosene and LPG rates would be taken to the Cabinet. The Kelkar committee had recommended an immediate hike in price of diesel by Rs 4 per litre, of kerosene by Rs 2 a litre and of LPG by Rs 50 per cylinder.

"By the year 2014-15, the fiscal benefit of the price increase will consist of a first order reduction in expenditure on subsidies, and a second order effect from the enhanced profits of upstream oil marketing companies," the Kelkar Committee stated noting that subsidy on diesel had been a major contributor to fiscal slippage in recent years.