Finance Minister Arun Jaitley on Thursday announced that the government would cut the excise duty on petrol and diesel by Rs 1.50 and the oil marketing companies had been asked to absorb Rs 1 per litre on fuel, taking the relief to Rs 2.50 per litre on petrol and diesel.

Addressing a press conference in New Delhi, the Union minister said the Centre would also advise state governments to follow the suit.

“Excise duty on petrol, diesel to be cut by Rs 1.50. Oil marketing companies to absorb Re 1 per litre on petrol and diesel, taking relief to Rs 2.50 per litre. We are writing to the state governments that as the central government is cutting Rs 2.50 on both petrol and diesel, they should also do the same,” said Jaitley

The finance minister said the excise duty cut would have an impact of Rs 10,500 crore on the central government’s tax revenues.

The reduction followed petrol and diesel prices touching new highs.

In Delhi, where the fuel prices are the lowest among all metros and most state capital, the petrol rate on Thursday was Rs 84 per litre while diesel was being sold for Rs 75.45.

Jaitley said the move followed Brent crude oil touching four-year high of USD 86 a barrel on Wednesday and interest rates in US reaching seven-year high.

Inflation in India, however, is still moderate at less than 4 per cent and higher direct tax collections give comfort with regard to fiscal deficit, he said adding domestic macroeconomic indicators are strong and stable, except for current account deficit (CAD).