An empowered group of ministers today failed to arrive at a decision on freeing auto fuel prices from government control, but discussed the possible inflationary impact such a move would have.

Freeing petrol and diesel prices would have meant an up to Rs 3.50 a litre hike in rates.

The oil ministry made a presentation to the eGoM, headed by finance minister Pranab Mukherjee, on the recommendations of the Kirit Parikh Committee that suggested freeing fuel prices from government control.

Oil companies have been selling fuel at less than the imported price and as a result suffer huge losses.

It was noted at the meeting that under-recoveries of oil marketing companies on account of current price structure and burden faced the government by way of compensating the companies during the period 2003-04 to 2009-10 was in excess of Rs 3.45 lakh crore.

The possible inflationary impact of rise in the prices of petroleum products was also discussed.

Diesel, which is currently sold at a discount of Rs 3.49 a litre, is the nation's most consumed fuel that is used in transport sector and hence has inflationary impact.

Overall inflation is currently close to 10 per cent and is mainly driven by high food prices. A rise in fuel prices could fuel it further.

The eGoM came to the conclusion that further discussion would be necessary before views are firmed up.

A further meeting will be scheduled shortly, but no dates were given for the next meeting.