Festive gift from the Government: Big cut in fuel prices

Finance Minister Arun Jaitley has announced a cut on excise duty levied on fuel prices by Rs 1.50, adding that oil marketing companies (OMCs) will absorb another Rs 1 in cost, bringing the total benefit to consumers to Rs 2.50.

The announcement comes after fuel prices have been consistently hitting record highs since mid-August. As of October 4, petrol prices stood at Rs 91.34 per litre in Mumbai.

He appealed to the states to match the centre’s effort by reducing value-added tax or VAT by Rs 2.50 so that the total benefit to citizens is at least Rs 5. Four BJP-ruled states — Gujarat, Maharashtra, Chhattisgarh and Tripura — immediately responded by dropping fuel prices by Rs 2.50. All BJP-ruled states are expected to cut fuel prices by this evening, said sources.

The Rs 2.50 benefit for citizens is within the control of the government and oil marketing companies, the finance minister said. “I am sure the states will also start delivering immediately,” Mr Jaitley said, amid the opposition’s allegations that the economy is under severe stress.

The excise duty cut would dent the government’s tax revenue by Rs 10,500 crore, the finance minister said. Taxes on petrol and diesel, which account for more than a third of retail fuel prices, are one of the biggest sources of income for the government. Minutes after Mr Jaitley’s announcement, the Gujarat and Maharashtra governments also slashed Rs 2.50 on petrol and diesel.

This year alone, petrol and diesel prices have been hiked by Rs 13.91 and 15.59 respectively in the national capital. Prices have seen a similar hike in other cities as well.

The finance minister added that the central government will not go back on deregulation of fuel prices. “We have to react to the situation and give relief without impacting fiscal deficit. We cannot do it at the cost of fiscal position and give it when it can absorb it,” he said.