By Nidhi Verma and Subrat Patnaik
India has the highest retail prices of petrol and diesel among South Asian nations as taxes account for about 40-50 percent of pump prices.
The country is particularly at risk from stronger global crude oil prices because it is the third biggest importer of the commodity, buying about 80 percent of its oil needs.
Oil Minister Dharmendra Pradhan said that the government is in discussion to find a resolution.
"The Indian government will take the common man into consideration and come up with short-term and long-term solutions," he said.
Indian petrol and diesel prices are benchmarked against Singapore gasoline prices and Arab Gulf diesel prices, which mostly track movements in crude oil prices.
Thursday's spike in Indian prices came as the global Brent crude benchmark fell on expectations major oil producers boost output. Brent broke through $80 a barrel last week for the first time since November 2014.
Prime Minister Narendra Modi's government, which had raised taxes on the two fuels when global oil prices were low, is already facing criticism from the opposition for higher retail prices.
Higher prices are denting popularity of the ruling Bharatiya Janata Party, which face polls in key states later this year and a nationwide election in early 2019. The party recently suffered a setback in elections in southern Karnataka state.
Costlier fuel has a knock-on effect as farmers and manufacturers pass on the extra cost to consumers, causing inflationary pressure that could strengthen the case for an interest rate hike.
While company officials prefer a cut in taxes, the government wants a long-term fix to the pricing of the two fuels to smoothly absorb external price shocks.
(Reporting by Nidhi Verma and Subrat Patnaik; Editing by Manolo Serapio Jr.)
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