State-owned oil firms, which skipped raising rates on September 16 even though their cost had gone up, cut prices in view of the downward trend in international markets.
Petrol price was reduced by 54 paisa a litre without including local sales tax or VAT, with effect from midnight tonight.
After accounting for the incidence of local sales tax, petrol rate in Delhi was reduced by 65 paisa to Rs 67.86 per litre, according to Indian Oil Corp (IOC), the nation's largest fuel retailer.
In Mumbai, petrol price was cut by 68 paisa to Rs 75.73 per litre.
Petrol price was last cut by Rs 1.50 a litre, excluding state levies, on August 31. That reduction in Delhi came to Rs 1.82 per litre.
Current* | Revised | Decrease
Delhi | 68.51 | 67.86 | 0.65
Kolkata | 76.14 | 75.46 | 0.68
Mumbai | 76.41 | 75.73 | 0.68
Chennai | 71.55 | 70.87 | 0.68
*Price in Rs
However, a reduction diesel rates, the first since January 2009, was put off till Modi's return from the US as the Oil Ministry felt it did not have a clear mandate to reduce rates post the January 2013 decision of the Cabinet to raise prices by 40-50 paisa a litre every month.
Petrol price was cut as it is a deregulated product needing no government intervention.
Softening international oil rates has meant that diesel under-recovery or the difference between retail price and its imported cost was wiped out and there was an over-recovery of 35 paise a litre from September 16. This over-recovery is now about Re 1 a litre.
Oil Minister Dharmendra Pradhan is believed to have already written to Modi on the emerging scenario. Also, the ministry has written to the Election Commission seeking their concurrence for the price decrease in view of state assembly elections in Maharashtra and Haryana.
A decision will be taken after Modi's return, they said.
Sources said the Oil Ministry is of the view that while the Cabinet Committee on Political Affairs (CCPA) on January 17, 2013, allowed a monthly increase in diesel price of 40-50 paise per month to wipe out the under-recovery, it wasn't envisaged that there would be over-recovery.
It wants to reduce diesel price to protect state-owned oil companies' market share, which may be lost to private retailers who would be selling diesel in tandem with international prices.
This would be the first reduction in diesel rates in over five years. Diesel rates were last cut on January 29, 2009 when they were reduced by Rs 2 a litre to Rs 30.86.
Since then rates have only increased as international oil prices climbed. Since January 2013, diesel prices have been raised by up to 50 paise a litre every month to eliminate under-recoveries.
Like diesel, state-owned oil companies had also not changed petrol rates on September 16 though it warranted a 54 paise increase as its benchmark gasoline rates had firmed up in international market.
This is perhaps the first time that retail prices of diesel in India are higher than global rates.
Oil companies calculate the desired retail selling price of petrol and diesel on 1st and 16th of every month based on average international benchmark price and rupee-dollar exchange rate.
As per this practice, a revision is due today.
Originally, petrol and diesel prices were deregulated in April 2002 when NDA government was in power. Administered pricing regime, however, made a back-door entry towards the end of NDA regime in the first quarter of 2004 when crude prices started inching up.
Congress-led UPA controlled rates as international oil prices went through the roof. In June 2010, however, it freed petrol price from its control and rates have since them moved more or less in tandem with cost.
In January 2013, the UPA decided to deregulate diesel prices in stages through monthly 50 paise a litre increases. Rates were last raised on August 31 after which losses have been wiped out.
Rates have cumulatively risen by Rs 11.81 per litre in 19 instalments since January 2013.