The fiscal measure, which comes just over a month ahead of the Budget, is aimed at reining in inflation that touched 6.12% for the week ended January 6. The new rates come into effect immediately.
The move comes after a round of consultations by the finance minister with Reserve Bank of India governor YV Reddy and the Prime Minister. In a late evening statement, the ministry said the duty was cut to reduce the cost of manufacturing and infrastructure development.
While finance minister P Chidambaram had often said inflation was largely a monetary phenomenon, the move comes as an immediate response to check inflation, which has touched a two-year high.
The customs duty on project imports has been slashed from 12.5% and 10% to 7.5%. The government has also allowed extension of project import rate of 7.5% to airport development projects and metro rail projects.
The duty on portland cement used in construction has been cut from from 12.5 % to zero. That on primary and semi-finished copper, aluminium, zinc and other base metals has been cut from 7.5% to 5%.