The Union Finance Minister, Arun jaitley, has announced a Rs 2.50 a litre cut in petrol and diesel prices, factoring in the excise duty reduction of Rs 1.50 per litre and asking oil companies to absorb another Re 1.
He said the excise duty cut would have an impact of Rs. 10,500 crore on the Central government’s tax revenues. He also asked state governments to follow suit by cutting a sales tax or VAT by a similar amount.The reduction followed petrol and diesel prices touching new highs.
In the Capital where the fuel prices are the lowest among all metros and most state capitals, petrol is sold at Rs 84 per litre and diesel at Rs 75.45. Mr. Jaitley said the move followed Brent crude oil touching four-year high of USD 86 a barrel on Wednesday and interest rates in the US reaching seven-year high.
Inflation in India, however, is still moderate at less than 4 per cent and higher direct tax collections gave comfort with regard to fiscal deficit, Mr. Jaitley said, adding that domestic macroeconomic indicators are strong and stable, except for current account deficit.
Concerned over the sparing fuel prices, the Finance Minister had met the Oil Minister, Mr. Dharmendra Pradhan, earlier to to look at options to mitigate its impact on the economy and the coming elections, sources said. The two ministers met amid concerns of high fuel prices adding to farmers’ distress, particularly during the Rabi crops season.
Diesel, which is being sold at record high prices, is the most used fuel in the farm sector with tractors using it and also irrigation pump sets. The hike in its prices had led to the farmers'march to the Capital the previous day. The two ministers are also believed to have discussed options to mitigate the impact of rising international oil prices and the rupee dipping to new lows. Petrol prices were Thursday hiked by 15 paise a litre and diesel by 20 paise, according to price notification of state-owned oil firms. The hike the price in Delhi to an all-time high of Rs 84 per litre and diesel to Rs 75.45.
Rates of subsidised cooking gas, too, have breached the Rs 500-mark for the first time. India is the third largest importer of crude and rising international prices are inflating domestic transport fuel costs in a strong demand environment. Brent, the benchmark for more than half the world’s oil, is trading at a four-year high of over USD 84 per barrel.
Sources said the options before the government are very limited; neither the the Centre nor the states have the bandwidth to make any steep cut in excise duties and sales tax due to limited fiscal space available in an election year. The only option could be to ask the oil companies to freeze prices and recoup losses when rates fall in future.