Modi government cuts fuel prices by Rs. 2.50, Maharashtra and Gujarat slash prices by an additional Rs. 2.50

Relenting to demands for giving some relief to consumers from rising petrol and diesel prices, the government of India has decided to cut prices of both the fuels by ₹2.50 today. Addressing a press conference, Finance Minister Arun Jaitley informed that union government has decided to cut excise duty on petrol and diesel by ₹1.50, while oil marketing companies will cut their prices on the fuels by ₹1.00, thereby giving a total relief of ₹2.50 to consumers. The finance minister noted that the international price of Brent crude has reached $86 per barrel which is highest in the last several years, and cutting excise duty on retail fuel has become necessary. The government will take a hit of ₹21,000 crore due to this cut.

The finance minister added that ministry is writing to all the states to match the cut and reduce VAT (Value Added Tax) on petrol and diesel by ₹2.50 so that prices of both the fuels come down by ₹5.00. He added that it will be interesting to see which states will cut VAT, it will be known whether political party leaders genuinely want to give relief to consumers or it is just rhetoric when they protest high fuel prices. The finance minister noted that while the component of excise duty in fuel price is fixed, the VAT charged by states on it is variable, as it is a percentage of the price. Therefore, when the fuel price goes up, the VAT states receive also go up. Due to this reason, states are in a better position to reduce their component of tax on fuel.

As per latest reports, the chief ministers of Maharashtra and Gujrat, both ruled by the BJP, have already announced the VAT reduction by  ₹2.50.

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The stocks of oil marketing companies fell sharply after this announcement, as they are asked to absorb a cut of ₹1.00 on the price. The market was already down today, and this announcement made the matter worse for OMCs. In just 20 minutes when finance minister made the announcement, share of HPCL fell by 22%, BPCL’s share price fell by 18%, IOC share price also came down by 18%.

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