In a major relief for consumers, the government on Thursday reduced excise duty on petrol and diesel by Rs 1.50 per litre and said the oil marketing companies (OMC) will absorb the impact to the tune of Re 1 per litre.
The consumers will get a benefit of Rs. 2.50, said finance minister Arun Jaitley while announcing the decision.
Following the centre's path, Gujarat and Maharashtra also reduced fuel prices by 2.50 per litre. Gujarat government reduced petrol and diesel prices by Rs 2.50 per litre, while Maharashtra lowered petrol price by 2.50 per litre.
Chhattisgarh, Assam and Tripura also reduced the fuel prices by Rs 2.50 per litre, while Andhra Pradesh and flood-hit Kerala refused the centre's request.
Petrol prices on Thursday touched an all-time high of Rs 91.34 per litre in Mumbai. Diesel is priced at Rs 80.10 per litre in the city.
In New Delhi, petrol prices rose by 15 paise to Rs 84 a litre while diesel prices increased by 20 paise to Rs 75.45 per litre. In Kolkata and Chennai, petrol prices climbed by 15 paise to Rs 85.80 and Rs 87.33 per litre, respectively. Diesel prices in Chennai increased by 22 paise to Rs 79.79 a litre and by 20 paise to Rs 77.30 per litre in Kolkata.
Brent oil on Wednesday crossed $86 per barrel, which is the highest in the last four years, and rising interest rates in the US have a significant impact across global markets, said Jaitley.
“We have authorised the oil marketing companies to raise $10 billion through foreign currency oil bonds,” he added.
By lowering duties, the Narendra Modi government is borrowing a page from the rulebook of past governments that have lowered levies whenever international oil prices shot up.
Since the government came to power in May 2014, it has used tax increases on petrol and diesel prices to raise funds for welfare programmes. But growing public anger over surging fuel prices has caught the attention of the government. Opposition parties have launched strikes and protests across the country over the issue.
"The government's move is positive as it will placate prices and inflation, said rating agency Care. "However, if the crude price continues to go up and the rupee falls, this would then have only limited impact."
In a boost to oil companies, the Reserve Bank of India (RBI) on Wednesday eased the overseas borrowing norms by up to $10 billion.
The RBI said that the state-owned oil companies can raise external commercial borrowings (ECBs) for working capital with minimum average maturity of 3-5 years and they don’t have to mandatorily hedge all ECBs.
India is the world’s third largest oil consumer, importing about 80 percent of its energy needs.