Fuel price rise: Finance Minister Arun Jaitley has announced cut in petrol and diesel excise duty

Highlights Gujarat, Maharashtra immediately announced fuel price cuts of Rs 2.50

All BJP-ruled states may announce price reductions by evening: Sources

Petrol and diesel prices are at an all-time high

Finance Minister Arun Jaitley today announced marginal relief for citizens from runaway fuel prices with excise duty cut of Rs 1.50 and another Re 1 drop by oil marketing companies, taking the cut in fuel prices to Rs 2.50.

He appealed to the states to match the centre's effort by reducing value-added tax or VAT by Rs 2.50 so that the total benefit to citizens is at least Rs 5. Six BJP-ruled states -- Uttar Pradesh, Gujarat, Maharashtra, Chhattisgarh, Assam and Tripura -- responded by dropping fuel prices by Rs 2.50. Jharkhand has reduced diesel prices by Rs 2.50, but not of petrol.

All BJP-ruled states are expected to cut fuel prices by this evening, said sources.

The Congress, however, said the fuel cut was like band aid on a deep wound and called it a "panic reaction by the Modi government amid anger among people."

"Giving a relief of Rs 1.50 is insignificant. It is like a needle in the haystack," said Congress spokesperson Randeep Surjewala.

Delhi Chief Minister Arvind Kejriwal tweeted that the Modi government increased excise duty on fuel by Rs 10 and today reduced just Rs 2.50. "It is a sham. The Centre should have at least reduced prices by Rs 10 per litre," he tweeted.

The Rs 2.50 benefit for citizens is within the control of the government and oil marketing companies, the finance minister said. "I am sure the states will also start delivering immediately," Mr Jaitley said, amid the opposition's allegations that the economy is under severe stress.

The excise duty cut would dent the government's tax revenue by Rs 10,500 crore, the finance minister said. 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.

Arun Jaitley's announcement followed petrol and diesel prices touching a new high. In Delhi, where oil prices are the lowest among big cities, petrol is being sold at Rs 84 per litre and diesel at Rs 75.45.

Mr Jaitley said crude oil touched four-year high of $86 a barrel on Wednesday and interest rates in the US have reached a seven-year high.

Following the announcement, the stocks of oil marketing firms such as Hindustan Petroleum, Indian Oil Corporation and Bharat Petroleum fell by over 18 per cent as they would be sharing the burden of the fuel price cut at a time when crude prices are high.