India cuts petrol, diesel prices to offset oil rise, rupee losses

The central government today announced a Rs2.50 per litre reduction in the retail prices of petrol and diesel with a similar reduction by some states, bringing the auto fuels cheaper by up to Rs5 per litre in some states and by Rs2.50 in other states.

Key BJP ruled states of Maharashtra, Gujarat, Uttar Pradesh, Tripura, Jharkhand, Chattisgarh, Madhya Pradesh and Himachal Pradesh also followed suit, and announced an additional cut of Rs2.50 per litre on petrol and diesel, bringing the effective reduction in prices to Rs5 per litre.
The centre levies a total of Rs19.48 per litre as excise duty on petrol and Rs15.33 per litre on diesel. On top of this, states levy value added tax (VAT) - the lowest being in Andaman and Nicobar Islands where a 6 per cent sales tax is charged on both the fuels.
Mumbai has the highest VAT of 39.12 per cent on petrol, while Telangana levies the highest VAT of 26 per cent on diesel.
The government has effected a reduction in the excise duty on petrol and diesel by Rs1.50 per litre with oil marketing companies taking a revenue hit of Re1 per litre, finance minister Arun Jaitley said.
Almost half of the fuel price is made up of taxes.
Jaitley also asked state governments to cut the value added tax on fuel by a further Rs2.50 per litre.
He said the government’s latest step is intended to tackle a sharp hike in crude oil prices that has also impacted the value of the rupee.
“I hope all state governments do this, and they announce this so that consumers benefit by 5 rupees,” he told reporters.
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, and a sensitive issue for voters.
Modi’s ruling party is facing a tough choice with election in three key states this year followed by a national election due by May next year.
The finance minister said the excise duty cut this year will make a Rs10,500 crore dent in the finances of the central government.
Shares in Indian Oil Corp, the country’s biggest oil refiner, dropped 11.4 per cent. Hindustan Petroleum Corp closed down 13.5 per cent while Bharat Petroleum Corp Ltd fell 12.4 per cent. Reliance Industries shares closed down 6.9 per cent, their biggest single-day fall since 24 August 2015.