Modi govt blinks, reduces petrol and diesel prices by Rs 2.5 a litre

Facing widespread discontent over the steep rise in fuel prices in recent months, the Union government on Thursday bit the proverbial bullet and cut the excise duty on petroleum products by Rs 1.50 a litre with immediate effect. Additionally, state-owned oil marketing companies (OMCs) have reduced the prices by Rs 1 a litre. This is the first time in more than four years that prices of either petrol or diesel are being controlled.

Union Finance Minister Arun Jaitley said he was also writing to all states to effect a similar Rs 2.50 a litre cut in the value-added tax on petrol and diesel. After his announcement, Maharashtra, Gujarat, Chhattisgarh, Assam, Tripura, Uttar Pradesh and Jharkhand announced a Rs 2.50 a litre cut.

Jaitley said the exchequer would take a hit of Rs 210 billion on an annualised basis due to the excise duty cut.

The impact could be Rs 105 billion in the current financial year, with six months already gone, he added. The calculation assumes that every rupee a litre cut in fuel prices leads to revenue forgone of around Rs 140 billion.