Intense pressure to cut fuel subsidies and contain soaring fiscal deficit could force Indian government to increase diesel prices further.

Sources with knowledge of the matter said that the Indian government has plans to increase diesel prices by Rs. 5 per liter after the Parliament sessions ends.

A senior official in the Prime Minister's Office said that the finance ministry is seriously working on capping fuel subsidies.

Revealing the government's plan, the official said, "We (government) are left with very limited options and a hike in the price of diesel has become inevitable."

State-owned oil companies, including Indian Oil, Bharat Petroleum and Hindustan Petroleum, are currently reportedly incurring losses of more than Rs. 14 a litre on diesel, Rs. 30 a litre on kerosene, and Rs. 237 on every LPG cylinder.

However, the official agreed that it would not be easy for the government to increase prices of diesel because any increase in diesel prices will put cascading effect on the prices of all vital commodities, fuel inflation further.

In the WholeSale Price Index (WPI), diesel has a weightage of 4.67, the highest among the 670 commodities of the Index. It means if the government increases diesel price by one rupee, the WPI index will increase by 0.13 per cent.