Calling today's hike in the prices of petroleum products as "modest", finance minister Pranab Mukherjee expressed hope that state governments would reduce their taxes to provide relief to consumers.
The government increased diesel price by Rs 3 per litre, domestic LPG by Rs 50 per cylinder and kerosene by Rs 2 per litre. It also slashed customs and excise duties on crude oil and products, sacrificing Rs 49,000 crore in revenues.
"(It is) very modest increase. I have taken the risk of reducing the duties substantially... I think it will be around Rs 49,000 crore on account of reduction of import duty and also the excise duty," Mukherjee told reporters after the hikes were announced.
He added, "I do hope the states will also reduce their VATs (Value Added Tax) so that relief could be given to the consumer."
Opposing the hike in diesel prices, Delhi Petroleum Association has urged the Delhi government to immediately reduce VAT so as to minimise its impact on inflation.
The hike is likely to push up overall inflation in the coming weeks.
Overall inflation rose to 9.06% in May from 8.66% in the previous month. Besides, food inflation for the week ending June 11 had touched a two-and-half-month high of 9.13%.