Mumbai: The government, under pressure from the Congress leadership and its Left allies, has announced a reduction of Rs2 and Re 1 per litre in the retail prices of petrol and diesel, respectively. The reduction, which forms 4.25 per cent and 3.0 per cent respectively of the retail prices of petrol and diesel, cited a fall in prices of crude as the reason.

"In view of the softening international oil prices, the government has decided to reduce retail selling price of petrol and diesel with effect from midnight tonight," petroleum minister Murli Deora said.

Deora had met prime minister Manmohan Singh on Tuesday to discuss the cut in fuel prices following suggestions by Congress party president Sonia Gandhi during a meeting of the Congress Parliamentary Party.

Oil marketing companies are currently making a profit of Rs3.67 a litre on petrol, which will come down by Rs2 after the price cut. The companies, however, are making a loss of Rs1.01 a litre on diesel, which will increase to about Rs2 a litre.

Profit on petrol sales is about Rs78 crore a day at present, while the loss on diesel is Rs34 crore. The current reduction in prices as expected to neutralise this.

Deora said international prices of crude oil have remained high over the last one-year putting a heavy burden on the economy and oil companies. Only marginal increases in prices of petrol and diesel of Rs4 and Rs2, respectively, were effected in June 2006 against the required increase of about Rs10 per litre each, he added.

The government, he said, had evolved a policy of equitable sharing of the burden of high international oil prices. "Accordingly, 87 per cent of the burden of increased international oil prices was shared by the government through oil bonds and the oil PSUs," he said.