New Delhi: India will have to raise the price of heavily subsidized fuels such as diesel, oil minister S. Jaipal Reddy said, indicating that hikes could be announced within a week.

The finance and oil ministries have been lobbying hard for an increase in prices of fuel, warning the cabinet that time was running out to avert a fiscal disaster and a sovereign credit downgrade to junk by global rating agencies.

“However painful and difficult an increase in the prices of oil products may be, an increase is unavoidable," Reddy told reporters after meeting the finance minister.

“To what extent can the consumers take it is another matter."

Reddy said the issue was unlikely to be decided on at a cabinet committee meeting later in the day, but the increase could come on Tuesday “or week from now".

Lowering the government’s subsidy burden is key to improving India’s fiscal outlook, while state-owned companies, which also help subsidise fuel prices, could see profit margins improve. Analysts say state-run oil marketing companies sell diesel at a loss of 17 a litre, kerosene at 32 a litre and domestic LPG at 347 per cylinder.

The government, struggling with graft charges over allocation of coal blocks, has delayed the hike in fuel prices, fearing a strong backlash from its allies and opposition parties ahead of state elections later this year.

Ratings agencies Fitch and Standard and Poor’s have warned that a widening deficit has put India at risk of becoming the first in the Brics group to lose its investment grade. The others in the group are Brazil, Russia, China and South Africa.

Economic affairs secretary Arvind Mayaram said the government planned to take corrective steps to rein in the deficit, which private economists warn will reach 6% of gross domestic product this fiscal year.

“Pain will be felt by everyone," he said.