The government today said the impact of partial deregulation of diesel prices on inflation

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and common man would remain "small and muted".

"Since the increase would be small, its impact on retail customers and inflation would remain small and muted," Minister of State for Finance Namo Narain Meena said in a written reply ro the Lok Sabha.

The government had last month allowed oil companies to make small hikes in the price of diesel from time to time following which they raised the price twice by small margin.

Inflation in January fell to a three year low of 6.62%. However, the impact of increase in prices of diesel and petrol on February 15 will get reflected in the inflation number which will be available next month.

While petrol price was hiked by Rs 1.50 per litre, diesel was raised by 45 paise on February 15. Earlier on January 17, diesel price was raised by 50 paise a litre.

Meena said although steps have been taken in the first year of the 12th Plan (2012-17) to adjust diesel prices and to cap the subsidy on LPG, this has not eliminated the under-recovery of oil companies.

"The increase in under-recoveries of OMCs is adversely affecting the financial position of OMCs and may affect mobilisation of funds for new projects during the 12th Plan period," Meena said.

The government in December obtained Parliament approval for raising the oil subsidy bill by Rs 28,500 crore over and above the amount earmarked in the Budget for 2012-13.

With the additional allocation, the total oil subsidy bill in the current fiscal will soar to Rs 72,260 crore.