In a move to save the bleeding oil companies, government also decided to slash customs and excise duties on crude oil and products, sacrificing Rs 49,000 crore in revenues. The increase in fuel price was decided at a meeting of the Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee.
Central government urged state governments to reduce their VATs (Value Added Tax) to give some relief to the consumers.
Oil Minister S Jaipal Reddy said that the hike was "very modest and minimal". He added that the hike was done to cut down on burgeoning under-recovery of oil marketing companies.
The EGoM also decided to abolish the 5 per cent customs or import duty on crude oil, and slashed the same on diesel and petrol by 2.5 per cent from 7.5 per cent. According to Jaipal Reddy, The reduction in excise duty on diesel would lead to a revenue loss of Rs 23,000 crore this fiscal, while in the customs duty cut the government will forego Rs 26,000 crore.
The price hike, which was effective from the midnight of Friday, Jun 24, would help the oil companies limit their revenue loss by Rs 21,000 crore, but they still would end the fiscal with about Rs 1,20,000 crore in revenue loss.
The decision to increase the price of diesel, kerosene and LPG came just a month after petrol price was hiked by Rs 5 a litre. The price of kerosene was hiked exactly after a year when the government had raised its rates by Rs 3 per litre.