The government today reduced the prices of petrol and diesel by Rs 5 and Rs 2 a litre, respectively, ahead of a stimulus package for the slump-hit automobile, export, real estate and infrastructure sectors expected to be announced on Saturday.

The reduction in prices are effective from the midnight Friday, petroleum minister Murli Deora said.

There is no change in the prices of LPG (cooking gas) and kerosene.

The government had earlier said a reduction in fuel prices have to wait till the ongoing elections in five states are over. The Election Commission, however, has said the move to reduce fuel prices is in national interest and does not violate the election code of conduct.

The government and the Reserve Bank expects a fuel price cut to further bring down inflation, which has already fallen to 8.4 per cent for the week ended 22 November from a high of nearly 13 per cent in July, when oil prices also peaked.

With prices of crude oil on the decline, public sector oil marketing companies – Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation – have started making a profit on the sale of petrol and diesel since November.

The Indian crude basket also hit a fresh low at $43.17 a barrel, the lowest in the current fiscal and the lowest for the past four years, amidst a steady fall in global oil prices.

The oil marketing companies are currently making a profit of around Rs13 for every litre of petrol they sell and around Rs3 for every litre of diesel.

They will, however, see pressure on their finances with the losses on account of the huge subsidies on LPG and kerosene. Together these two  will add up to a loss of over Rs100,000 crore for oil PSUs in the current financial year.

The Indian crude basket has averaged $102.09 a barrel so far in the current fiscal and this is the first time it has fallen below $50 a barrel since the financial year 2005. The crude basket has fallen 70 per cent from a high of $142.04 a barrel in July.