Biting the bullet, the government today hiked diesel prices by a steep Rs 5.62 per litre and restricted the supply of subsidised cooking gas to 6 cylinders per household in a year to fetch an additional Rs 20,300 crore.

It, however, left kerosene rates untouched and spared an increase in petrol price by cutting excise duty by Rs 5.50 per litre.

Reeling under the criticism of a policy paralysis and facing an urgent need to cut down the ballooning oil subsidy of Rs 187,127 crore, the Cabinet Committee on Political Affairs chaired by Prime Minister Manmohan Singh took the decisions which have come under strong attack from allies like TMC and SP. TMC and DMK ministers kept away from the meeting.

The biggest-ever hike of Rs 5 hike in diesel prices excluding VAT or local sales tax will make the commodity sell at Rs 46.95 per litre from tomorrow in the national capital as against Rs 41.32 a litre currently.

The CCPA decided that each household will get 6 cylinders of 14.2-kg per annum at the subsidised rate of Rs 399 and any requirement beyond that would have to be procured at the market rate of Rs 746 per bottle.

Diesel prices were last hiked by Rs 3.37 per litre in June last year.

State-owned oil firms were losing about Rs 6 per litre on petrol, a commodity which was deregulated in June 2010 but rates of which have rarely moved in tandem with cost.

Even after the hike and restrictions on LPG, the government will be left with an under-recovery of Rs 167,000 crore this fiscal which is more than Rs 138,541 crore of 2011-12.

Following the cap, during the remaining part of the current fiscal, consumers will get three LPG cylinders.

The hike in diesel price is short of Rs 17 a litre increase required to make rates at par with its production cost.

Of the Rs 5 per litre hike, only Rs 3.50 would go towards reducing this deficit and Rs 1.50 would be pocketed by the government as additional excise duty.

"The under-recovery on sale of diesel during 2012-13, even after this price hike, is estimated to be above Rs 103,000 crore," an official statement issued this evening said.

The decision to cut excise duty on petrol by Rs 5.30 per litre from Rs 14.78 currently, would however not benefit the consumers as it would go towards making up of Rs 16 crore per day loss the oil companies currently incur on sale of the product.

The government decided not to raise kerosene rates even though the current price of Rs 14.83 per litre was short of its cost by a massive Rs 34.34. The under-recovery of oil marketing companies on sale of kerosene this fiscal would continue to be about Rs 32,000 crore.

Restricted supply of subsidised LPG would help in reducing under-recovery of about Rs 5,300 crore during the remaining part of the financial year.

The decision to restrict the supply of subsidised LPG cylinder was taken based on the recommendation of the Parliamentary Standing Committee.

"The effect of capping supply of subsidized LPG cylinders at six per annum will lead to saving of subsidy on one third of the total LPG cylinders," it said.

Two third of the total cylinders will still be supplied at subsidised rate. About 44 per cent of the total domestic LPG consumers, who consume 6 cylinders or less per annum, will not be affected by this decision.

TMC leader and Railway Minister Mukul Roy and Fertilizer Minister and DMK leader M K Azhagiri abstained from the meeting of the Cabinet committee which top ministers and senior ministers of allies to decides on politically sensitive issues.

Opposing the diesel price hike by Centre, the NCP also demanded a rollback saying the change will further burden on the common man.

"The Centre should consider rollback in diesel price and should not put a cap on subsidised LPG especially given the high price of essential goods thereby affecting the common man," NCP spokesperson Nawab Malik said.