New Delhi: As oil traded near four-year lows, the government on Friday cut petrol and diesel prices by Rs5 and Rs2 a litre, respectively — a move that will help tame inflation and foster easy money policy to push growth.
As an interim measure, the government has decided to cut the prices with effect from midnight tonight, Petroleum Minister Murli Deora said here after a meeting with Prime Minister Manmohan Singh.
Although there is no change in the prices of LPG (cooking gas) and kerosene, the government would continue to watch international crude prices before effecting further cuts.
The government had in June raised the prices of petrol and diesel by Rs5 and Rs3 a litre, respectively, and that of LPG by Rs50 a cylinder to protect oil marketing firms against losses on account of a rally in crude prices.
The hike had then propelled inflation to double digits and stayed so for five months. Inflation cooled to 8.40% as of 22 November, but is still above the RBI’s tolerance level.
Crude oil subsequently climbed to a record high of $147 a barrel in July, but has now come to $43.5, a four- year low.
Today’s decision will have a revenue implication of Rs5,798 crore for oil marketing companies this fiscal.
Under-recoveries of OMCs as of today were calculated at Rs98,512 crore and this will now increase to Rs1,04,310 crore.
Prior to the reduction, state-run oil firms were earning a profit of Rs14.89 a litre on petrol and Rs3.03 on a litre of diesel. However, they continue to sell kerosene at a loss of Rs17.26 a litre and Rs148.89 on every LPG cylinder.