But with the government looking to raise resources for a slew of programmes to revive the economy, chances of a reduction in excise duty appears remote. In that case, pump prices of petrol may go up by Rs 2 a litre and diesel by Re 1. In all likelihood, the price increase may come after the budget session that ends on August 7, unless crude falls or duty is cut.

Petrol at present attracts an excise duty of Rs 11.35 per litre and diesel Rs 1.60. Besides, a Rs 2 road cess is charged on every litre of motor fuel. With the mix of crude India imports rising to an average of $70 a barrel in June from $58 in May, state-run fuel retailers have started posting losses on motor fuels once again. They are losing Rs 135 crore every day on sale of motor and kitchen fuels and are projected to lose around Rs 38,700 crore in this fiscal at present price levels.

Marketers are losing Rs 2.96 a litre on diesel and Rs 6.08 per litre on petrol. The oil ministry feels a rise of Rs 2 per litre on petrol and Re 1 on diesel will be needed in the absence of duty relief. The remaining losses can be be covered through bonds -- government IOUs -- to retailers and discounts from domestic oil producers and gas transporters.

Oil minister Murli Deora has been on record saying "rising crude prices are a matter of concern". While he has refused to comment on the specifics, his bureaucrats say the issue of allowing oil retailers to set motor fuel prices is still on the table. After taking over his second stint at the ministry, Deora had said the government will decide in 6-8 weeks whether to deregulate prices or not. But given the price situation, the government appears to have lost that window.

If decontrol is brought in at this point, pump prices will jump substantially -- petrol by almost Rs 6 a litre and diesel by Rs 3. The effect of such a steep hike in diesel price at this point will be devastating for the economy and common consumers as it will push up prices of almost everything from white goods to food items.

Cross-subsidising of prices by making petrol costlier by a hefty margin and keeping diesel price hike to a minimum will upset the middle class population and erase the goodwill Congress had earned in UPA-1 by keeping fuel prices in check through crude's high run last year.