Govt says may hike fuel price or cut duty next week

A man fills a car at a petrol pump in New Delhi in this September 6, 2005 file photo. India is considering raising fuel prices or cutting duties in a bid to ease the pain of state oil firms hit by the surge in global crude prices, and hopes to agree a package next week, the oil minister said on Friday.

NEW DELHI (Reuters) - India is considering raising fuel prices or cutting duties in a bid to ease the pain of state oil firms hit by the surge in global crude prices, and hopes to agree a package next week, the oil minister said on Friday.

Murli Deora met Prime Minister Manmohan Singh and ruling Congress party chief Sonia Gandhi to discuss relief measures for the firms, which are forced to sell fuel at artificially low rates to protect the poor and fight inflation.

"We hope to find a solution next week," Deora told reporters.

"There were several alternatives which were discussed -- an increase in prices, reducing import duties on crude and reducing (excise) duties on products."

"Government is considering all these," he said.

But analysts say important state elections due in December, opposition from communist allies to a nuclear deal with the U.S., and the implications for inflation will make officials think twice before raising prices.

The government is yet to raise state-administered retail fuel prices this year even though global oil prices topped $96 a barrel this week. Oil was holding above $94 on Friday as concerns over tight fuel supplies in the run up to winter returned to the fore.

India's government issues oil bonds to oil firms to partially offset their losses from selling fuel below market rates.

But with crude prices rising, countries such as India that sell gasoline, diesel and other consumer fuels at below costs are feeling the heat.

Deora met Singh and Finance Minister Palaniappan Chidambaram on Thursday and said there appeared to be few options to consider apart from raising prices or cutting duties.

The Indian crude basket has risen by 145 percent since April 2004, but retail prices of petrol have gone up by just 29 percent and those of diesel by 40 percent.