Addressing a presser, Finance Minister Arun Jaitley stated that the decision will result in a revenue loss of Rs 10,500 crore in six months and urged states to effect a similar cut.
The relief to consumers will be in three parts - centre will cut excise duty by Rs 1.5, and oil marketing companies (OMCs) will factor in Re 1 in their pricing, and states have been asked to cut Value-Added Tax as they have raked in windfall gains due to ad valorem nature of the levy that results in higher realisation whenever rates move up, the finance minister said. Acting on Arun Jaitley's advice, chief ministers of Maharashtra and Gujarat reduced state taxes on petrol and diesel.
Fuel prices reached new highs in other cities too - with petrol costing Rs 84 per litre in New Delhi, Rs 87.33 per litre in Chennai and Rs 85.80 per litre in Kolkata on Thursday.
"It is a panic reaction against the people's anger".
Bihar deputy chief minister and BJP leader Sushil Kumar Modi was more circumspect in his reaction as he was quoted by ANI as saying, "We didn't receive any letter from Jaitley ji".
The fuel price cut decision is only the latest in India's government efforts to cushion the blow from rising oil prices.
Finally, after an unhindered rally of fuel prices, the government has announced a tax-cut to compensate for the increase in crude prices. The PM and the FM must answer the people for this 13-lakh crore "fuel loot'", he said. "Thus petrol and diesel will be Rs 5 cheaper in the state of Gujarat".
"By asking the oil marketing companies to absorb the price hike, the government is giving a signal that it can interfere at anytime in a deregulated market in the larger public interest", said Gagan Dixit, a senior analyst with Elara Capital.
Madhya Pradesh government has also made a decision to give an additional relief of ₹2.5/litre on Petrol and Diesel to give total benefit of ₹5/litre in the state, tweeted Madhya Pradesh CM Shivraj Singh Chouhan.
The Finance Minister said, the prices of crude oil and domestic developments in the U.S. have impacted the economies across the world.
Brent crossed $86 per barrel and this is the highest in the last four years. Earlier today, Transport Minister Nitin Gadkari told media that the country will face an economic crisis if prices continue to rise.