Facing all round severe criticism, the government on Tuesday night slashed the excise duty on petrol and diesel by Rs 2 per litre -- effective Wednesday -- which is expected to bring down the retail selling prices of the two fuels.
According to the government, the decision to reduce the "Basic Excise Duty" rate on petrol and diesel has been taken to cushion the impact of rise in international crude prices.
The decision will cost the exchequer Rs 13,000 crore during the remaining part of the fiscal and Rs 26,000 crore for the full year.
As per the Ministry of Petroleum and Natural Gas's calculations, the reduction in excise duty will decrease prices of petrol and diesel by Rs 2.50 and Rs 2.25 per litre respectively in New Delhi.
"This measure would help reducing the prices of petrol and diesel and giving relief to consumers," the Ministry said in a statement.
"As a result of reduction in excise duty, the decrease in prices of petrol and diesel will be Rs 2.50 per litre and Rs 2.25 per litre respectively at Delhi."
Informed sources told IANS here that the reduction in retail prices will "likely be reflected" from Wednesday morning.
The three state-owned oil marketing companies (OMCs) -- Indian Oil, Bharat Petroleum Corporation and Hindustan Petroleum Corporation -- revise prices of petrol and diesel on a daily basis and these are announced at 6 a.m.
Currently, an excise duty component of Rs 21.48 per litre is levied upon petrol -- and, consequent to the reduction in excise duty, this will come down to Rs 19.48.
In case of diesel, Rs 17.33 excise is charged per litre -- this will come down to Rs 15.33 per litre.
On Tuesday, the retail selling price of petrol in New Delhi was pegged at Rs 70.88, while that for diesel was at Rs 59.14 per litre.
In effect, the government decision will act as a check against retail prices going up in case global crude rates rise further.
"The Government of India has decided to reduce the basic excise duty rate on petrol and diesel [both branded and unbranded] by Rs 2 per litre with effect from 4th October, 2017," a Finance Ministry statement here said.
"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 statement said.
"The revenue loss on account of these reductions in excise duty is about Rs 26,000 crore in a full year, and about Rs 13,000 crore during the remaining part of the current financial year," it said.
Earlier, due to the increase in the international prices of petrol and diesel during the last few weeks, the retail selling prices of petrol and diesel in Delhi have risen to Rs 70.83 a litre and Rs 59.07 per litre, respectively, as on October 2.
This rise in the prices of petrol and diesel is also reflected in WPI inflation, which has increased to 3.24 per cent for the month of August 2017, as compared to 1.88 per cent for the month of July 2017, which prompted the government to act swiftly, it added.
Opposition parties have been critical of the government that petrol prices have been ruling high and it has not cut excise on fuels despite international prices rising recently.
When crude prices were falling dramatically over the last two years, the government, since 2015, hiked excise on petrol by Rs 12 a litre, and on diesel by over Rs 13, in instalments.
Last month, petrol prices in Mumbai, for instance, crossed levels it had touched before the Narendra Modi government took charge in 2014. In response to criticism on rising fuel prices, Petroleum Minister Dharmendra Pradhan clarified that the excise revenues served for spending on social development schemes.
He also ruled out any change in the present system of market-determined pricing.