The over 20 per cent rupee depreciation this year and global oil rates spiking to two-year high on threat of western strikes against Syria has meant that loss on sale of subsidised diesel and cooking fuel will rise to at least Rs 140,000 crore from last month's estimate of Rs 123,000 crore.
Tight on finances, the finance ministry has no means to meet half of the losses by way of cash subsidy. A one-time steep hike in diesel prices and possibly also cooking gas (LPG) is being mulled after the monsoon session of Parliament ends next week.
"We are all worried about rupee depreciation. All of us should all do our best to reduce the tension on the economy. We are discussing how we can conserve energy and reduce fuel consumption (so that imports are cut)," Moily told reporters after the 30-minute meeting.
Losses on diesel sales at government-controlled rates have widened to Rs 10.22 per litre from Rs 9.29 a litre at the beginning of the month and less than Rs 3 per litre in May, even as prices are raised by 50 paise a litre every month.
Besides, the oil companies lose Rs 33.54 per litre on kerosene and Rs 412 per 14.2-kg cooking gas (LPG) cylinder.
The revenue loss or under-recovery on diesel and cooking fuel was estimated at Rs 80,000 crore at the beginning of the fiscal and has now widened to Rs 140,000 crore.
Moily said the under-recoveries which were estimated at Rs 123,000 crore last month may go up but added "we are addressing that issue."
"We have to ensure that we help finance ministry to reduce CAD," he said adding while India does import oil from Syria, the crisis developing will have an impact on international prices.
India is 79 per cent dependent on imports to meet its oil needs and rupee depreciation means it has to pay more for the imports. Last year, it shelled out about USD 170 billion on import of oil.
Moily refused to say if fuel prices will be raised next month but sources in his ministry said that was an option seriously under consideration.
Every one Indian rupee depreciation in the local currency against the dollar adds Rs 8,000 crore to the under-recovery while a one dollar per barrel increase in international prices results in Rs 4,800 crore additional outgo.
The government had in January allowed oil companies to raise diesel rates by up to 50 paise per month until losses on the most-consumed fuel in the country are wiped out.
Oil companies feel a 50 paise hike is insufficient and there should be a higher, one-time increase to cover for the fall in the rupee.
The price of diesel was last increased on August 1, when prices in Delhi went up by 56 paise (including local taxes) to Rs 51.40 per litre.