If the current trend continues, diesel will be deregulated in three months.
An official statement said the difference between the cost of diesel production and the retail selling price has narrowed to R1.33 per litre from R2.49 last month.
This was made possible because of softening international oil rates and the new government continuing with monthly price increases.
Diesel prices were on Thursday hiked by 50 paise per litre. Rates have cumulatively risen by R11.24 per litre in 18 installments since January 2013 when the previous UPA government had decided on small monthly hikes.
The government had in January 2013 decided to raise diesel prices in small doses of 40-50 paise per litre every month till the losses, which are made good through government subsidy, are completely eliminated.
Officials said the monthly increases had trimmed losses to less than R3 per litre in May last year before a fall in rupee value led to losses on diesel sale widening to R14.50 per litre in September 2013.
Since then, monthly increases have continued and the rupee has strengthened.
The losses have fallen rapidly since March as the prospect of a stable and decisive government under PM Narendra Modi helped the rupee gain against the dollar.
Losses on diesel stood at R8.37 per litre in March.
When the Modi government came to power in May, losses on diesel sales stood at R4.41 a litre. They fell to R1.62 a litre in the second half of June but doubled to R3.40 in the first fortnight of July. The losses fell to R2.49 in the second half of last month.
Petrol price was deregulated in June 2010 and has moved more or less in tandem with the cost.
State-owned oil firms calculate the desired retail selling price of petrol and diesel on 1st and 16th of a month, based on average international oil rates and foreign exchange value in the previous fortnight. While petrol rates are revised accordingly, diesel prices are hiked on the 1st of every month.
Besides diesel, oil firms are losing R32.98 a litre on kerosene and R447.87 on LPG, the statement said. "Oil marketing companies are now incurring combined daily under-recovery (revenue loss) of about R226 crore on the sale of diesel, PDS kerosene and domestic LPG. This is lower than R261 crore daily under-recoveries in the previous fortnight," it said.
The under-recoveries for the financial year 2014-15 are projected to be R91,665 crore as opposed to R1,39,869 crore in 2013-14.