The government on Wednesday slashed customs duties on petrol and diesel by 5.0 per cent while cutting excise duties by 3.0 per cent, as part of efforts to check inflation that crossed 7.6 per cent.

The finance ministry sources said the duty cuts would cost the exchequer over Rs 4,000 crore (Rs 40 billion).

The customs duty on petrol and diesel has been cut from 20 to 15 per cent, while it has been lowered for kerosene and LPG from 10 to 5.0 per cent.

The excise duty on diesel has been brought down from 11 to 8.0 per cent while it has been slashed from 26 to 23 per cent for petrol.

The excise duty on kerosene has been cut to 12 from 16 per cent.

The impact of the excise duty cuts on the exchequer would be over Rs 3,900 crore (Rs 39 billion) -- Rs 580 crore for petrol, Rs 2,620 crore for diesel and Rs 720 crore for kerosene.

The customs duty cut on LPG would cost the government Rs 218 crore (Rs 2.18 billion).

The duty cuts were carried out by the finance ministry in view of the surge in inflation.

Inflation, based on Wholesale Price Index, surged to 41 month high of 7.61 per cent during week ended July 31.

Today's decision is part of the fiscal measures Chidambaram had promised to check soaring prices, a major concern of the government for over a fortninght.

Chidambaram had said last week that the government would not resort to any panic or knee-jerk reaction and the response from it and the Reserve Bank would be "measured."

The surge in global oil prices was "unexpected and beyond the control of government", he had said adding fiscal measures would be taken by the finance ministry and monetary measures by the Reserve Bank.

Apart from the unanticipated spurt in global crude oil prices, the sudden spurt in inflation has been due to unusual increase in international commodity prices because of massive construction activity in China for 2008 Olympics.

Seasonal factors and erratic monsoon have also contributed to the inflation, which had remained over 7.5 per cent for over a fortnight.

But the finance minister expects the inflation to stabilise by September after the seasonal factor settles down provided there was no further surge in oil prices.

Duty cuts to impact refiners

Slashing of excise and customs duty on petroleum products will impact refiners like Indian Oil Corporation and Reliance by about Rs 5,350 crore (Rs 53.5 billion) in terms of lesser realisation from the crude oil they process.

Official sources said Reliance Industries' Jamnagar refinery will be hit by about Rs 450 crore (Rs 4.5 billion), as import duty on the products were included in the price at which the products were sold to oil marketing companies like IOC, Bharat Petroleum Corp and Hindustan Petroleum Corp.

IOC will perhaps be worst affected due to the duty cuts, taking a hit of about Rs 2,600 crore (Rs 26 billion), sources said.