Government approves hike in domestic gas prices

NEW DELHI (Reuters) - India took the unpopular step of approving a gas price rise for the first time in three years on Thursday, a move which could inject much needed investment in local production but boost imports of more costly liquefied natural gas (LNG).

A cabinet meeting approved a new gas pricing formula which will link domestic prices to global levels, Food Minister K.V. Thomas told reporters, confirming earlier reports on two TV channels citing sources.

The move will be unpopular with voters as local and national elections loom in the next 12 months, but is key to easing acute power shortages in the country, where cheap gas deters investment and keeps demand way above actual use.

Indicative pricing suggests domestic gas could rise by at least 50 percent to $6.7 per mmBtu with the new approved pricing mechanism, helping boost revenues of producers like state-run Oil and Natural Gas Corp and Oil India .

That would still be one of the lowest prices in Asia.

The government needs to encourage power production in order to help revive Asia's third-largest economy that grew at its slowest pace in a decade in the year ending March 31, 2013.

(Reporting by Mayank Bhardwaj and Nigam Prusty; Writing by Jo Winterbottom; editing by Malini Menon)