Centre reduces fuel prices by ₹2.5, tells states ‘it is your turn’

The reduction in petrol and diesel price includes a ₹1.5 cut in excise duty from the revenue department and the remaining Re 1 will be borne by oil and marketing companies.

Finance Minister Arun Jaitley on Thursday announced a ₹2.5 cut in per litre price of diesel and petrol and asked state governments to announce a matching reduction.

The cut in fuel prices will cost the exchequer ₹10,500 for the remaining half of this financial year. (HT File Photo)

The minister said the centre would reduce the tax rate by ₹1.5 per litre while oil marketing companies would absorb another Re 1.

The reduction comes ahead of assembly elections in five states: Rajasthan, Madhya Pradesh, Chhattisgarh, Telangana and Mizoram.

Petrol prices were Thursday had gone up by 15 paise a litre and diesel by 20 paise, pushing retail prices in Delhi to an all-time high of ₹84 per litre and diesel to ₹75.45.

Jaitley said the reduction in fuel price for customers wasn’t bad economics.

“This is perfectly good economics... we want consumers to spend money on other items also... and to do it without impacting the fiscal deficit is still good economics,” Jaitley announced after inter ministerial discussions with petroleum ministry.

“If reducing oil prices is good politics, so be it,” he said.

The minister recalled that the central government had reduced taxes on fuel last October by ₹2 and only states ruled by the BJP-led NDA coalition had announced matching cut in state taxes.

This time, he expected the NDA-ruled states to follow suit and reduce the state’s value added taxes.

He insisted that telling oil marketing companies to absorb Re 1 didn’t imply going back on deregulation of prices. “But the fact is that we have to react to a situation...if without impacting the fiscal deficit I can give relief, and I had always said that our ability to give relief will not be at the cost of fiscal deficit,” he said.

Jaitley said the move followed Brent crude oil touching four-year high of USD 86 a barrel Wednesday and interest rates in US reaching seven-year high.

Inflation in India, however, is still moderate at less than 4 pe cent and higher direct tax collections give comfort with regard to fiscal deficit, he said adding domestic macroeconomic indicators are strong and stable, except for current account deficit (CAD).