An Empowered Group of Ministers headed by Finance Minister Pranab Mukherjee today met for the second time in less than three weeks to decide on raising fuel prices, but Railway Minister Mamata Banerjee was absent again.

Banerjee and Agriculture Minister Sharad Pawar had abstained from the first meeting of the eight-member EGoM on June seven that was to decide if petrol and diesel prices can be freed from government control, along with hikes in domestic LPG and kerosene rates.

Their absence then was attributed to opposition to increase in rates of diesel and cooking fuel and the EGoM postponed a decision.

While Pawar was part of today's meeting, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Transport Minister Kamal Nath were absent as they are away on official visit.

Oil Minister Murli Deora, Power Minister Sushilkumar Shinde and DMK leader and Fertiliser Minister M K Alagiri were present.

Banerjee late last evening met Mukherjee ostensibly to discuss the imperatives of fuel price hike. Some say she may have informally agreed for a hike in petrol prices and her absence from the EGoM today may be to serve her political goals in West Bengal by remaining disassociated with the decision.

Sources said the panel may go with Deora's proposal to free petrol prices from government control, which would trigger a hike of Rs 3.73 a litre.

There was near-unanimity on bringing about market-linked prices for petrol, a fuel generally used by the well-off, but it remains to be seen if the Rs 3.73 per litre hike would come into effect immediately or in two equal installments.

However, sources said that freeing diesel prices was out of the question because the fuel was used by the transport and agriculture sector and, therefore, would have an impact on the already high inflation rate.

The EGoM may settle for a Rs 2 per litre hike in diesel rates instead of the Rs 3.80 hike needed to make it market-linked, they said.

Also on the cards is a Rs 25 per cylinder hike in domestic LPG rates and a marginal increase in kerosene prices, but these would have to pass the muster of Banerjee and Pawar.

Sources said that Alagiri who had attended the last EGoM, was agreable for an increase in auto fuel prices.

With global crude oil trading at below USD 80 a barrel, Deora is seeing this as the last opportunity to usher in reforms in the sector which, otherwise, would need Rs 74,300 crore in doles to bridge the gap between retail prices and import costs.

Freeing of petrol prices would reduce the Rs 74,300-crore deficit by about Rs 5,000 crore. A one rupee per litre hike in diesel prices would cut losses by Rs 3,800-4,000 crore.

Industry backs government on fuel price hike

India Inc today hailed the decision of hiking petrol, diesel, cooking gas and kerosene prices, saying the government has demonstrated ability to take a difficult political decision.

However, at the same time, the leading chambers of industry also talked about the inflationary pressures due to the decision to hike prices of petro products and free petrol from any administrative price control.

"CII welcomes the decision to deregulate fuel prices.

While this will have some negative impact on the inflation in the short term ... the government has (shown) the ability to implement policy changes even if they are politically difficult," the industry body said.

CII said in the long term, the decision would have a positive impact.

According to FICCI, the government has taken a "very nuanced approach" in freeing up petrol prices.

Despite voicing inflationary concerns, the chambers said the move would have a negative impact on the inflation which has reached the double digit. But it would help bring viability in the country's oil economy.

While petrol price will go up by Rs 3.5 a litre and diesel by Rs two a litre, households will have to pay an additional Rs 35 per cylinder for cooking gas. Poor man's cooking fuel kerosene will be dearer by Rs 3 a litre from today.

Instead of keeping prices artificially suppressed, it was important to send correct price signals to consumers so that there is no wastage of scarce resources, CII said.

FICCI cautioned fluctuations in global oil prices "can derail the overall economy" and asked the government to evolve a mechanism to provide a cushion against the volatility.