The prices of auto fuels are likely to go up from Saturday. The government is understood to have taken an in-principle decision to increase the prices of petrol and diesel, even as the policy managers are debating a cut in customs duty on both crude and petroleum products. A reduction in duties customs or excise would soften the impact of the price hike on the consumer, as both the levies built into the retail price.

Government sources said the key members of the Cabinet, who met on Friday afternoon, proposed that petrol prices be increased by a maximum of Rs 5 per litre and diesel by Rs 2. Cooking gas, whose prices have been kept unchanged for about four years, may be tinkered with if there is a political consensus.

They have also suggested a cut in customs duty on crude oil from 5% to 2.5% and a reduction in import duty on petrol and diesel by 2.5% from the current 7.5%. Since customs duty is included in the import/trade parity prices on which the retail price is fixed, a duty cut will bring down the retail prices, while a reduction in import duty on petro products will help oil refiners a relief of nearly Re 1 per litre, sources said.

It was learnt that the finance ministry is unwilling to reduce excise duty, although a minor adjustment is not ruled out, given the political pressures. Finance minister P Chidambaram had removed the 6% ad-valorem component from the excise duty in the Budget to forgo any windfall gains due to surging crude prices. Excise duty on petrol has been made specific at Rs 14.35 litre (from 6% + Rs 13/litre earlier) and diesel at Rs 4.60 per litre (from 6% + Rs 3.25/litre).

The group has also made some other proposals like imposing duty on exports of petroleum products by private refiners like Reliance Industries and Essar and revisiting their export-oriented unit status considering the fuel crisis. Petroleum ministry is understood to have turned down the proposals, pressed mainly by the Left allies.

But sources in government said that such proposals could be considered at the political level even against the wishes of the oil ministry. The sources said the twin proposals of a price hike and duty rejig are no longer in the hands of either petroleum minister Murli Deora or finance minister P Chidambaram.

The core group of the Congress party is expected to deliberate the various options on Saturday and a final decision would be taken in the Cabinet meeting on the same day. They said even the Congress Working Group could discuss the proposals informally before a final announcement is made.