The government increased the prices of petrol by Rs 2 and that of diesel by Re 1 a litre on Thursday.

The hike in the fuel prices will come into effect from midnight on Thursday.

The sensitive issue of a hike is fuel prices was discussed at the meeting of the Cabinet Committee on Political Affairs on Thursday.

This is a part of the government's efforts to mitigate the spurt in global oil prices.

The decision will benefit oil companies, whose total under-recoveries are pegged at Rs 71,808 crore (Rs 718.08 billion), to the tune by Rs 840 crore (Rs 8.40 billion) in value terms.

The government also decided to increase oil bonds, issued to offset losses of oil firms due to sale of fuel below cost price, to 56-57 per cent of the total under-recoveries from 42.7 per cent now.