The oil firms had yesterday skipped cutting rates of the two fuels that had become necessary as international oil rates plunged to their lowest level since May 2009.

The excise duty hike has now been set off against the reduction in rates that was due because of slide in oil prices.

READ: Petrol, diesel prices slash by Rs 2 per litre

The slump in global oil rates had warranted a price cut of Rs 3.22 per litre in petrol and about Rs 3 in diesel and even after adjusting the excise increase, oil firms will have a neat margin of over Re 1 per litre.

"In order to fund the ambitious infrastructure development programme of the government, particularly the building of 15,000-km of roads, during current and next financial year, the government has decided to increase basic excise duty on petrol and diesel by Rs 2 per litre," an official statement said.

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Together with Rs 1.50 a litre excise duty hike effected on both products from November 12 and Rs 2.25 per litre increase in duty on petrol and Re 1 on diesel from December 2, the government will mop up about Rs 17,000 crore this fiscal to contain fiscal deficit.

"Allocation of these resources to the road sector will also spur economic activity and employment generation arising from the road construction sector," the statement said.

Excise duty on normal or unbranded petrol has been hiked from Rs 4.95 per litre to Rs 6.95 a litre and on unbranded diesel from Rs 3.96 to Rs 5.96 a litre.

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The total incidence of excise on petrol, after including special excise duty and road cess, will be Rs 14.95 and that on diesel will be Rs 7.96 a litre.

Similarly, excise duty on branded petrol has been raised from Rs 6.10 to Rs 8.10 a litre and on branded diesel from Rs 6.25 to Rs 8.25 per litre.

"These increased rates of basic excise duty will be effective from January 2, 2015 (that is from midnight of 1st and 2nd January, 2015). There will be no change in other excise duty rates applicable to these commodities," the statement added.

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