In India, nearly half of the price of retail fuel is due to taxes.
This time, he expected the NDA-ruled states to follow suit and reduce the state's value added taxes.
This came after Jaitley asked states to further cut prices on their level by Rs 2.50 per litre so that consumers can get a relief amounting to Rs 5 per litre.
After the minister's announcement, may states including Jharkhand, Gujarat and Chhattisgarh too announced a reduction in fuel prices.
On Thursday, petrol and diesel prices in Delhi were Rs 84 per litre (increase by Rs 0.15) & Rs 75.45 per litre (increase by Rs 0.20) while in Mumbai, they were Rs 91.34 litre (increase by Rs 0.14) & Rs 80.10 (increase by Rs 0.21), respectively.
He also noted that the oil marketing companies are fully competent to deal with the decision and the government was not going back on fuel price deregulation.
The move to ask state-owned oil firms, who were given pricing freedom, to absorb Re 1 per litre was seen as a return of government control over pricing, leading to stocks of Indian Oil Corp (IOC), Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) tanking. When the petrol price is about to cross Rs 92 per litre, the government has reduced Rs 5 per litre. Of this, IOC's share would be roughly half and the rest split equally between HPCL and BPCL.
Brent, the benchmark for more than half the world's oil, is trading at a four-year high of over Dollars 84 per barrel. Neither the centre nor the states have the bandwidth to make any steep cut in excise duties and sales tax due to limited fiscal space available in an election year.
"The impact will be about Rs 21,000 crore for the full fiscal".
In a press briefing, Jaitley said that the Centre will cut Rs 1.50 in excise duty on fuel while an additional Re 1 will be absorbed by the Oil Marketing Companies (OMCs). "But the fact is that we have to react to a situation.if without impacting the fiscal deficit I can give relief, and I had always said that our ability to give relief will not be at the cost of fiscal deficit", he said.