NEW DELHI: Under attack from rivals and with assembly elections round the corner, the Centre on Thursday cut petrol and diesel prices by Rs 2.50 per litre, a decision that was followed by several BJP-ruled states, giving an overall relief of Rs 5 per litre to the comman man.
''The Centre's decision will result in a revenue loss of Rs 10,500 crore in six months,'' Finance Minister Arun Jaitley said while announcing the much sought-after relief and urged the states to effect a similar cut.
He told a press conference that the cut will be effected through slashing of excise duty to the tune of Rs 1.50 per litre while the oil marketing companies (OMCs) will absorb the impact to the tune of Re one.
"The notification in this regard will be issued today (Thursday) and prices will be applicable immediately afterwards," he said.
The Centre`s decision was announced after high-level consultations involving Prime Minister Narendra Modi, BJP president Amit Shah, Finance Minister Arun Jaitley, Petroleum Minister Dharmendra Pradhan and Railway Minister Piyush Goyal.
With assembly elections due later this year in Madhya Pradesh, Rajasthan and Chhattisgarh, where the BJP has high stakes, the decision came a day after the Union Cabinet decided to hike minimum support price for Rabi crops.
Acting quickly on the orders of the BJP president, the party-ruled governments in Maharashtra, Uttar Pradesh, Gujarat, Madhya Pradesh, Himachal Pradesh, Jharkhand, Chhattisgarh, Uttarakhand, Haryana, Assam, Arunachal Pradesh, Goa and Tripura announced a Rs 2.50 cut in VAT on the fuels.
Jammu and Kashmir, which is currently under Governor’s rule, also announced a reduction of Rs 2.50 on fuel prices.
While Maharashtra effected the cut only on petrol, all other states did it on both fuels. Jharkhand, which had earlier announced a cut only on diesel, later applied to petrol as well.
Meanwhile, West Bengal Chief Minister Mamata Banerjee blamed the Centre for high fuel prices and demanded that the Union government should roll back the Rs 10 cess it levied on petrol and diesel before asking the states to reduce taxes.
She said that the Centre can dictate the BJP-ruled states but not the others. Banerjee claimed that fuel prices were reduced in the international market and asked why these were increasing in the country.
"We have not increased fuel prices. You have increased it. You can control the BJP-ruled states but not the others", she said.
West Bengal had reduced the fuel price by Re 1 in August.
Similarly, Delhi Chief Minister Arvind Kejriwal too slammed the Centre's decision of cutting the fuel price by saying that the actual slash should be Rs 10 per litre.
Punjab Chief Minister Captain Amarinder Singh called a meeting of officers of excise and taxation and finance department on Friday to assess the implications and the impact of the Centre's suggestion to states on reducing fuel prices.
Reacting to the Centre`s decision, the Congress described the cut as "an ant" compared to the increase which is "an elephant".
"It`s a panic reaction from the government. The relief is insignificant and like a needle in haystack," party spokesperson Randeep Surjewala said daring the government to bring fuel prices to 2014 levels.
The Kerala government, which had recently reduced VAT on the fuels, said it would not cut the tax now and asked the Centre to restore prices to 2014 levels before it can consider further cuts.
Last month, the governments of Karnataka, West Bengal, Rajasthan and Andhra Pradesh had cut taxes on petrol and diesel.
Jaitley also said the revenue impact of the decision would amount to around Rs 10,500 crore for the rest of the fiscal, which amounts to "only 0.05 percent of the fiscal deficit".
The Finance Minister expressed confidence about meeting the fiscal deficit target despite the excise duty cut, saying increased revenue collections would absorb the impact of the cuts.
"The government`s aim is to give relief to the consumer by increasing their purchasing power without impacting the fiscal deficit," he said.
Jaitley said the decision to give relief to consumers was necessitated by the uncertainty regarding the international oil prices and could be possible on account of better-than-expected revenue collections.
"The government`s capacity to provide relief is only when domestic factors are strong," he said.
It is only the international factors, primarily rising prices of crude and domestic policy and other measures like the interest rate hike by the US, which have affected India, Jaitley said, adding India`s domestic indicators are strong and stable.
''Except for the Current Account Deficit (CAD), which is directly linked to oil prices, all other data are encouraging,'' he said.
The Minister also maintained that Thursday`s decision does not represent a re-regulation of fuel prices.
Responding to a query about state governments following suit with similar tax cuts, Jaitley said this measure would be "a test for all state governments, especially those whose leaders have been demanding cuts while paying lip service to people".
While the Centre received a fixed revenue from excise duty on oil, states imposed ad valorem VAT in percentage terms which go up to as high as 31 percent, Jaitley said.
"Even when the prices go up, the Centre receives a fixed amount per litre, whereas the revenue of states goes up. So, it is easier for states to forego a part of the additional revenue that they receive due to the price increase. Last time it was only the NDA-ruled states, which made the VAT reductions after the Rs 2 excise cut by the Centre last year," he said.
Transport fuel prices have continued on a daily record-breaking upward movement, with petrol inching closer to Rs 84 in Delhi and having already crossed the Rs 91 a litre-mark in Mumbai.
Brent crude oil hit $86 per barrel on Wednesday, recording its highest level in four years.
(With Agency inputs)