However, fuel will cost Rs 5 per litre lesser with immediate in six states - Uttar Pradesh, Gujarat, Maharashtra, Chhattisgarh, Tripura and Assam - where state governments have further cut Value-Added Tax by Rs 2.50 per litre. Diesel prices went up by almost 30 paise and petrol prices increased by nearly 20 paise.
The fuel prices had been going up every day for last few weeks, burning a hole in people's pockets. The minister said the Centre would reduce the excise duty by Rs 1.5 per litre while oil marketing companies would absorb the rest Re 1 per litre.
Addressing mediapersons here, Congress spokesman Randeep Singh Surjewala called the cut "a panic reaction in the face of public anger" ahead of assembly polls in four states.
On top of that, the government is clearly struggling to meet its disinvestment target of Rs 80,000 crore, just 11 per cent of the target has been met so far - about Rs 9,220 crore has been raised through disinvestment - to bring in excise duty cuts doesn't seem like sound economics which could further put pressure on India's macro fundamentals that are already under pressure because of escalating oil prices.
► Tripura government has also slashed the prices of fuel.
Surjewala said that an RTI reply has revealed that the Modi government was selling petrol and diesel to several countries at less than half the price at which it was being sold in India. "The government's aim is to give relief to the consumer by increasing their purchasing power without impacting the fiscal deficit", he said.
Terming the problem of rising crude oil prices in the global market as a serious one, Jaitley said oil producing nations have capped their production, thus creating a demand-supply mismatch.
Jaitley said it will be a test for those states whose leaders were only tweeting and indulging in lip sympathy.
Jaitley attacked the opposition further asserting that non-BJP ruled states have not provided fuel price relief to consumers. He said that all that was done before the BJP came in was the cut down on expenditure to manage balance sheets, which in turn made the growth suffer.
Petrol prices on Thursday touched an all-time high of Rs 91.34 per litre in Mumbai.
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Brent oil on Wednesday crossed $86 per barrel, which is the highest in the last four years, and rising interest rates in the United States have a significant impact across global markets, said Jaitley.
Nearly half of the fuel price is made up of taxes. On Saturday, the petrol was being sold at Rs 81.68 per litre and the diesel has been priced at Rs 73.79 per litre.
At the same time, the Finance Minister has urged all states to contribute Rs 2.5 from their side, and make the overall reduction as Rs 5.