Prime Minister Manmohan Singh with new comptroller and auditor general of India Vinod Rai (left) in New Delhi on Monday. (PTI)

New Delhi, Jan. 7: Prime Minister Manmohan Singh today said that a hike in fuel prices might not be the only option before the government to deal with the surge in global crude oil prices.

He said the steep rise in crude prices was a cause for concern. The rise affected other commodities, and the government would explore various options to meet this crisis.

Officials said the petroleum ministry wanted a hike of Rs 4 for a litre of petrol and Rs 2 for diesel.

“We have to look at all possibilities. I would not like to comment on it,” Singh told reporters after new comptroller and auditor general Vinod Rai took the oath of office in the Rashtrapati Bhavan.

The group of ministers (GoM) on fuel, headed by external affairs minister Pranab Mukherjee, will hold its first meeting on January 17.

Oil minister Murli Deora said the government was looking at options such as the rationalisation of duties and taxes on petroleum products, suggested by the Left, to help state-owned oil marketing companies reduce their losses.

He said the fuel price hike was not the only option.

The officials said the GoM could suggest a marginal increase in the price of petrol and diesel, cuts in excise and customs duties or more oil bonds.

It could even propose a mix of these measures.

Customs and excise duties contribute about 50 per cent to fuel prices.

An increase of one rupee a litre in the price of petrol will cut under-recoveries of the oil companies by Rs 90 crore a litre.

A similar rise for diesel will slash monthly losses by Rs 360 crore.

If there is a reduction of the excise duty on petrol, the under-recoveries will go down by Rs 1,380 crore. For diesel, the reduction is Rs 5,270 crore.

Fuel prices were last increased on June 6, 2006. They were rolled back in two phases — November 30, 2006 and February 16, 2007.

Sources, however, said that the cabinet, which will take the final decision based on the recommendation of the GoM, might avoid a steep hike in prices as fuel was a politically sensitive issue.

Any hike would lead to an immediate conflict with the Left parties, who have been opposing such a move.

It will also give the Opposition an issue to attack the government.

Analysts said the government did not increase prices as it wanted to keep inflation under control. India imports two-thirds of its crude requirements.

Inflation is at 3.5 per cent now compared with 5.73 per cent a year ago.

The analysts said a check on inflation was necessary, more so after the electoral reverses of the Congress in the Gujarat and Himachal Pradesh polls.

However, the government would have to consider the long-term global projection of crude prices made by Goldman Sachs, the most active investment bank in the energy markets, while taking a decision.

The investment bank in its oil forecast for 2008 has warned that prices can reach $105 a barrel, with an average price of $95 a barrel.

Earlier, in 2005, Goldman had predicted that crude prices would touch $100 a barrel in 2007.