Petroleum minister Murli Deora in New Delhi on Friday. (PTI)

New Delhi, May 23: The government is expected to increase petrol prices by Rs 2 a litre and keep diesel prices unchanged.

Higher diesel prices tend to make essential commodities costlier as these are carried by trucks which run on diesel.

The government is unlikely to agree to the demand of the petroleum ministry to increase petrol prices by Rs 10 a litre and diesel by Rs 5 a litre.

Sources said the government would come up with a mix of price hike, duty rejig and more oil bonds to deal with the situation, arising from global crude oil prices touching $135 a barrel.

“The situation is getting to be alarming. We need to stem the rot at the beginning,” petroleum secretary M.S. Srinivasan said.

Oil minister Murli Deora said steps needed to be taken immediately but refused to set a time frame for a decision. “I just can’t say by when a decision will be taken. It may take 3- 4 days,” he said.

Srinivasan said the price hike was “inevitable” and his ministry was seeking an increase in oil bonds and a reduction in customs duty from 5 per cent to nil.

The ministry also wants a cut in the customs duty on crude oil and petroleum products and a reduction in the excise duty on petrol and diesel.

However, a meeting this evening between finance minister P. Chidambaram and Deora failed to arrive at a consensus on the appropriate strategy.

Indications are that oil companies will have to wait for a few more days before the government comes out with a bail-out package for them and raise prices.

The government is hopeful of prices stabilising, while it will get the time to look into different options in a greater detail.

Faced with close to Rs 600 crore daily loss on fuel sales, the oil companies are being forced to borrow Rs 3,500 crore a month. But by September, their borrowing limits will run out, making them unable to import crude.

The government can also raise the borrowing limit of oil companies, Deora said, as the cash crunch may affect the investment and expansion plans of the companies.

Minor rise

Petrol and diesel prices have been raised marginally by 3-5 paise per litre after the government decided to hike the commission paid to dealers for the sale of fuel.

Dealers’ commission effective midnight will be Rs 28 per kilolitre for petrol and Rs 31 per kilolitre for diesel, an Indian Oil Corporation official said.