NEW DELHI: Facing flak for the recent rise in petrol and diesel prices, the Centre on Tuesday reduced the basic excise duty on both by Rs 2 a litre, while acknowledging that fuel prices were fuelling inflationary pressures.

Pump prices were to go down by Tuesday midnight.

The move came as the diesel price hit a record high of Rs 59.14 a litre in Delhi and petrol was at a two-year high of Rs 70.88. Since the start of daily price changes from June 16, retail prices of petrol and diesel have climbed 8.5%, or by Rs 5.56 a litre and Rs 4.65 a litre, respectively.

The government said the rise in the prices of petrol and diesel is reflected in WPI inflation, which rose to 3.24% in August, compared to 1.88% in July 2017. This was in contrast to its earlier stand when it was defiant in keeping taxes unchanged.

While there was a clamour for the government to reduce taxes, the Centre sought to shift the blame to the states and oil minister Dharmendra Pradhan made a pitch for a shift to GST, suggesting it will lower retail prices. In case of petrol, more than half of the retail price is on account of taxes by the Centre and the states, while it a little lower for diesel. But a bulk of the taxes are levied by the Centre.

With economic growth slowing down and the Centre’s policies coming under attack, the Narendra Modi government seems to have acted to provide some comfort.

“This decision has been taken by the government in order to cushion the impact of rising international prices of crude petroleum oil and petrol and diesel on retail sale prices of petrol and diesel as well as to protect the interest of common man,” the finance ministry said in a statement, while announcing the duty cut.

The government had defended the high duties, arguing that funds were needed to meet infrastructure and development spending at a time when private investment has slowed down. But with an increase in oil price the government is still raking in the moolah with tax collections from the petroleum sector estimated at Rs 2.4 lakh crore last year, nearly two-and-a-half times the Rs 99,000 crore collected in 2014-15.



In Video: Government cuts basic excise duty on fuel by Rs2/litre