Finally, Modi govt cuts ₹2.5/l on fuel, urges state govts to follow

With unrelenting increase in fuel prices, the government on Thursday, October 4, decided to effect a cut in the prices of petrol and diesel by ₹ 2.50 per litre. The Brent crude has touched $86 per barrel and there is uncertainty in the international crude oil market.

Finance Minister Arun Jaitley announced at a press conference that the cut will be effected through slashing of excise duty to the tune of ₹ 1.50 per litre, while the oil marketing companies will absorb the impact to the tune of ₹ 1 per litre.

He has urged the state governments to cut the VAT on fuel by an equal amount. Jaitley said that the move will have an impact of ₹10,500 crore this fiscal but the government is confident of achieving the fiscal deficit target.

Jaitley stated that the situation in the international market is uncertain but our macroeconomic fundamentals - especially on the inflation and fiscal front - is strong enough to bear the impact of this uncertainty.

Moderate inflation which is less than 4% and higher tax mop up has given the comfort on the fiscal front, said Jaitley.

The government has taken up different measures to tackle this problem. The Reserve Bank of India (RBI) has allowed the Oil Marketing Companies (OMCs) to raise dollars directly from the overseas market capping it at $10 billion said Arun Jaitley.

The finance minister said that the government has also acted decisively on the IL&FS situation and replaced the board. The government is determined to contain the adverse impact of the IL&FS contagion, Jaitley added.

Reacting to the Centre's move, Maharashtra has cut ₹2.5 per litre on petrol and diesel. Both the commodities will now be cheaper by ₹5 in the state.

(with inputs from agency)