New Delhi: The government Thursday announced a Rs 2.50 a litre cut in petrol and diesel prices, factoring in excise duty reduction of Rs 1.50 per litre and asking oil companies to absorb another 1 rupee per litre.
Finance Minister Arun Jaitley said the excise duty cut would have an impact of Rs 10,500 crore on central government's tax revenues.
He also asked state governments to follow suit by cutting a sales tax or Value Added Tax (VAT) by a similar amount.
The reduction followed petrol and diesel prices touching new highs.
In Delhi, where the fuel prices are the lowest among all metros and most state capital, petrol is sold at Rs 84 per litre and diesel at Rs 75.45.
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 per 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).
With assembly elections due next month in Madhya Pradesh, Rajasthan and Chhattisgarh, where the BJP has high stakes, the decision comes a day after the Union Cabinet decided to hike minimum support price for rabi crops.
Acting quickly on the orders of the BJP President, the party-ruled governments in Maharashtra, Uttar Pradesh, Uttarakhand, Gujarat, Himachal Pradesh, Jharkhand, Goa, Assam, Kashmir, Arunachal Pradesh, and Tripura announced a Rs 2.50 cut in VAT on the fuel.
While Maharashtra effected the cut only on petrol, Jharkhand did it on diesel.
Reacting to the Centre's decision, the Congress described the cut as an ant compared to the increase which is an elephant.
"It's a panic reaction from the government. The relief is insignificant and like a needle in haystack," party spokesperson Randeep Surjewala said daring the government to bring fuel prices to 2014 levels.
Last month, the governments of Karnataka, West Bengal, Rajasthan and Andhra Pradesh had cut taxes on petrol and diesel.
Kerala won't reduce VAT
Kerala Finance Minister Thomas Isaac on Thursday refused to reduce VAT by Rs 2.50 on petrol and diesel in the southern state as per the Centre's request so as to give relief to the people.
The state will do so if the Centre bring the fuel prices down to the level when the Narendra Modi government assumed office in May 2014, Issac told the media here while reacting to Union Finance Minister Arun Jaitley's statement in this regard.
"Ever since the Modi government assumed office, it has raised excise duty on diesel by Rs 14 and petrol by Rs 9 per litre. You should understand that the reduction effected on Thursday is on this amount. If the Centre is serious, it should reduce the tax to what it was when it assumed office. Then we will also step in," said Isaac, a former economist.