It's a Hobson's choice for the government: either it coughs up an additional Rs 8,783 crore (Rs 87.83 billion) as subsidy for LPG and kerosene, or jacks up the prices of the two cooking fuels by around 60 per cent.

If the retail prices of LPG and kerosene supplied through the public distribution system are to be maintained at current levels, the annual petroleum subsidy bill in the forthcoming Budget will go up to Rs 15,278 crore (Rs 152.78 billion) from Rs 6,495 crore (Rs 64.95 billion).

Alternatively, the government has to hike LPG prices by Rs 160.05 a cylinder and kerosene prices by Rs 5.08 a litre if the finance ministry decides to retain the fixed rate of subsidy on these two products.

At present, an LPG cylinder and a litre of kerosene is subsidised to the extent of Rs 67.75 and Rs 2.45, respectively. Their actual retail prices should be Rs 469 a cylinder and Rs 16.54 a litre, respectively given the existing international prices and excise duty rates.

The petroleum ministry has informed the finance ministry that as per the actual market prices of the two cooking fuels and the flat rate subsidy on them, there is a need to raise domestic LPG prices from Rs 241.20 a cylinder to Rs 401.25. Similarly, kerosene prices should go up from Rs 9.01 a litre to Rs 14.09 a litre.

The petroleum ministry has said that the revenues of Indian Oil, Hindustan Petroleum Corporation, Bharat Petroleum Corporation, and IBP had taken a hit of Rs 3,000 crore (Rs 30 billion) during April-December 2002 due to the stagnant LPG and kerosene prices.

However, finance ministry officials say that given the estimated Rs 15,000 crore (RS 150 billion) tax shortfall during the current fiscal, it will be difficult to increase the subsidy.

The way out could be a moderate increase in the prices as well as subsidies.