India cut fuel prices by up to 11 percent on Wednesday, its second reduction in nearly two months, as crude's $100 fall since last July gave the government a chance to pass on the benefit to consumers ahead of elections.
India's cuts followed those of Asian peer China, which in mid-January reduced prices to reflect changes in global crude rates and unveiled measures to promote fuel efficiency.
"Under the present circumstances, it has been decided to reduce the prices of petrol... and diesel," Pranab Mukherjee, who is standing in as finance minister, told reporters after a cabinet meeting.
The price of petrol was lowered by 5 rupees per litre, or 11 percent, from 45.62 rupees ($0.93) in New Delhi, while diesel will be 2 rupees, or 6 percent, cheaper from the current retail price of 32.86 rupees in the Indian capital.
Oil Minister Murli Deora said the cuts would become effective midnight.
Deora said no decision had been taken on deregulating fuel prices or changing the tax structure for the sector.
A government official had earlier said ministers were likely to end price controls on transport fuels and allow firms to set market-determined prices.
On Jan. 1, China raised the consumption tax on fuel oil sevenfold as part of a wider tax and fuel-pricing reform intended to encourage fuel efficiency and bring local prices more in tandem with international rates.
Beijing then cut gasoline and diesel prices by a few percent two weeks later, a move that analysts said could herald more frequent price changes in future.
India trimmed diesel prices by 6 percent and gasoline rates by 10 percent in early December, the first reduction in two years, after crude oil plunged from its July peak above $147.
General elections must be held by May, with a coalition headed by the Congress party pitted against its principal opposition led by the Hindu-nationalist Bharatiya Janata Party and a host of smaller parties.
Lower oil prices in a slowing economy have helped India's inflation rate drop to 5.6 percent after it galloped to a 13-year high of nearly 13 percent in August.
U.S. crude was up 0.32 percent at $41.90 a barrel at 17:39 GMT, rebounding from a 9 percent fall a day earlier, when bleak economic data from the United States, the top energy consumer, stirred demand concerns.
Crude oil prices have fallen as the global economic crisis has weakened demand, especially in developed economies.
India's economy has braked sharply in recent months, cutting demand for oil products, and GDP expansion in the fiscal year to March-end is expected to moderate to 7 percent from 9 percent levels in each of the past three years.
Crude oil imports slumped in December to their lowest in over four years despite the commissioning of Reliance Petroleum's new 580,000 barrels per day refinery.
Oil demand in Asia's third largest consumer is likely to have slowed down in January because of a strike by millions of truckers, while dealers would have trimmed inventories anticipating the cut in fuel prices.
(Additional reporting by Mayank Bhardwaj and C.J. Kuncheria)