India cuts petrol, diesel prices as economy flags

New Delhi: India cut fuel prices for the first time in nearly two years on Friday after crude oil's fall of over $100.

The 10 per cent cut in gasoline prices and a near 6 per cent decrease in diesel were announced by the oil minister, Murli Deora, ahead of an expected cut in short-term interest rates this weekend as New Delhi seeks to keep its economy growing.

The measures will also further reduce inflation that has fallen from a high of almost 13 percent in early August to just over 8 percent.

But lower prices will trim earnings for state-owned refiners like Indian Oil Corp and BPCL, which were just starting to enjoy profitability after years of mounting losses from selling heavily discounted fuel as crude prices surged.

"On the inflation point of view, yes this is positive, but it is going to hit the profitability of the oil companies,"said Sachchidanand Shukla, economist at Enam Securities in Mumbai.

"They are now making profit of 12-14 rupees per litre for petrol and three rupees for diesel, which is going to be eroded."

The government regulates and partly subsidises prices of widely consumed fuels.

After the cuts announced by Deora, the price of petrol in New Delhi will be 45.6 rupees ($0.92), while diesel will cost 32.86 rupees a litre. Rates vary across the country depending on local taxes.