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In the second such move in less than two months, the government slashed the price of petrol by Rs 5 a litre, diesel by Rs 2 a litre and cooking gas by Rs 25 per 14.2 kg cylinder. The price cut is expected to tame inflation and boost demand in the economy, but will reduce oil companies’ margins, which had been improving with the fall in crude oil prices since October 2008.

The government also fixed the MSP for wheat at Rs 1,080 per quintal.

However, according to the official, “The government has deferred its proposal to deregulate the prices of petrol and diesel.” “It may happen later.”

The official said the government decided against raising excise and customs duty at this stage. It will issue more oil bonds to the three public sector oil marketing companies—IOC, BPCL and HPCL—to save them from posting losses this fiscal. “It is likely that the upstream companies may have to bear more subsidy burden in the form of oil discount to these oil marketing companies,” he said.

This, incidentally, is the second and final round of fuel price cuts before the general elections. In December, while announcing a price reduction of petrol by Rs 5 a litre and diesel by Rs 2 a litre, oil minister Murli Deora had said it was an “interim measure” and the government would reduce fuel prices further if global prices of crude oil maintain a downward trend. Crude oil prices fell below $36 a barrel on December 24.

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