Indian petrol refineries are on a financial knife edge after being forbidden by their Government to pass on record-high oil prices to consumers.

The country's state-owned refiners have been reporting combined revenue losses of more than $100 million (£50.5 million) a day in recent weeks as oil has risen as high as $135 a barrel on world markets. The losses come on the back of hugely discounted retail prices, set by the Government in Delhi, at which fuels are sold to shield India's poor from high fuel costs.

In parts of India, there have been reports of petrol stations rationing fuel to cut the losses they are incurring.

Officials have admitted that the situation is unsustainable and that it is inevitable that the prices paid on India's forecourts will be raised.

Such a move would place a further burden on hard-pressed consumers already dealing with big price rises for daily staples such as flour, milk and vegetables.

Large price increases are likely to be announced this week, a step that will place the Government under unwelcome pressure before a general election that must be held by May next year.

It is understood that the ministry responsible for oil is requesting rises of 22 per cent in the price of petrol and about 16 per cent for diesel.

Several Asian oil importers have said that they will rethink fuel subsidies after new highs for oil. Taiwan, Malaysia and Indonesia are looking to cut subsidy costs - moves that will lead to big price rises for consumers.

In India, fuel subsidies are costing the three main state-owned operators - Indian Oil Company, Bharat Petroleum and Hindustan Petroleum - losses of about $60 a barrel on a crude oil price of $130, analysts reckon.

Any rise in petrol prices will come at a difficult time for India, already being hit by higher inflation, largely because of high crude oil prices. On Friday it was revealed that the country's inflation rate jumped to a revised 8percent in March, well above the central bank's 5.5 per cent comfort threshold, according to the wholesale price index.

Goldman Sachs economists expect the inflation trend to rise because of higher oil prices and have also revised their near-term average wholesale price inflation forecast to 7.5 per cent, year-on-year, up from 6.5 per cent.

Indian Oil Company is aiming to mortgage its assets to raise emergency funds to stay operation. The group has balloted shareholders on the measure, which would double its borrowing limit to about £9.4 billion.

At present the Indian Government compensates petrol companies for a portion of losses they incur for subsidising fuel costs. Last year the country spent about £5 billion on subsidising fuel, equivalent to 1 per cent of GDP.

Going up

— India's inflation rate leapt to a revised 8percent in March, well above the central bank's 5.5per cent comfort threshold

— Goldman Sachs expects the inflation trend to rise on higher oil prices. Its economists have also revised their near-term average wholesale price inflation forecast to 7.5 per cent, from 6.5 per cent

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