Responding to a query about state governments following suit with similar tax cuts, Jaitley said that this measure would be a "a test for all state governments, especially those whose leaders have been demanding cuts while paying lip service to people". When the petrol price is about to cross Rs 92 per litre, the government has reduced Rs 5 per litre.
But growing public anger over surging fuel prices has caught the attention of the government.
All the cuts will be effective from midnight, as clarified by Dr. Hasmukh Adhia, finance secretary. "The cut makes petrol and diesel prices cheaper by Rs 5 in the state". According to reports, Karnataka Chief Minister HD Kumaraswamy said that the state government will not reduce prices anymore since it has already announced a rate cut. In Mumbai, petrol rates had breached Rs 90 per litre.
He said the Kerala government wants the Centre to remove taxes on petrol and diesel that were imposed when the BJP-led government imposed in 2014 after coming to power. He said that the central government will reduce excise duty by Rs 1.5 while oil companies will absorb the remainder.
However, Kerala Finance Minister Thomas Isaac said that he will not cut fuel prices.
Last month, Rajasthan, Karnataka and Andhra Pradesh had reduced Value-Added Tax to cushion consumers for a spate of price increases.
A one rupee per litre cut in excise duty results in over Rs 14,000 crore of revenue loss to the centre on an annualised basis.
"We are writing to the state governments that as the central government is cutting Rs 2.50 on both petrol and diesel, they do the same", Jaitley added. The centre levies a total of Rs 19.48 per litre of excise duty on petrol and Rs 15.33 per litre on diesel.
Global oil prices have risen to four-year highs above $85 a barrel on fears of a global supply crunch, prompting US President Donald Trump to repeatedly demand the Organization of Petroleum Exporting Countries to lower prices.
Maharashtra charges the highest sales tax and VAT on petrol at 39.12 per cent.