"This money will go to the welfare schemes. They need drinking water, electricity and houses," Petroleum Minister Dharmendra Pradhan told reporters here.

"Should the government of India close down welfare schemes? Will  they remain a lip service to people? The Centre has a lot of  obligations for the common man and poor people," he added.

A day after petrol and diesel prices were cut by nearly a rupee, the government Tuesday raised the excise duty on transport fuels respectively by Rs.2.25 and Re.1 a litre, with immediate effect.

Consumers, however, will be spared the burden of the excise hike and there will be no change in retail prices, a petroleum ministry official said.

The government last hiked the excise duty on petrol and diesel by Rs.1.50 per litre on Nov 12, which was similarly not passed on to consumers. The move, according to finance ministry officials, could fetch around Rs.4,000 crore in the remaining part of the current fiscal. The addition from the earlier increase is expected to be Rs.6,000 crore and both these will be shared by the central government and the states as per the prescribed formula.

An official source in the finance ministry explained the economics behind hiking the excise duty, a major portion of which goes to the states, particularly in the wake of a fall in the global crude oil prices to a five-year low.

The official said since the over-recovery, or profit, that state-run oil marketing companies have now been making on these fuels had gone up, the government has taken a credit of a portion of the same.

As a consequence, he added, consumers will feel no impact of Thursday's excise hike. Continuing their plunge, international crude oil prices went below $70 a barrel mark. The Indian basket crude oil price on Tuesday fell to $67.72 (Rs.4,208.12) per barrel, down from $70.29 per barrel on Friday.

The excise hike will boost the government's indirect tax collections in a situation of economic slowdown and help it contain the fiscal deficit.

Saying that the NDA government inherited "empty coffers" besides a revenue deficit of Rs.70,000 crore, Pradhan said the money it would mop by the hike in duty would help it run schemes meant for the poor.

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