As part of its pre-budget recommendations petroleum minister Murli Deora had recommended Chidambaram that excise duty on diesel be cut "immediately" by Re 1 a litre in order to ease rising inflation.

Lowering excise duty on diesel would lower transportation rates which are a huge cause for prices of commodities rising, a source in the oil ministry said.

As the excise duty cut proposal has been rejected, any immediate reduction in auto fuel prices is ruled out, the official said. The official also said the finance ministry maintains that lowering "diesel prices will not help curb inflation."

"It would be wrong to say the finance minister has rejected our proposal to cut excise duty by Re 1. However, he has not yet accepted our proposal either," Deora said.

The petroleum ministry has sought zero excise duty on diesel in the budget for 2007-08. Currently, excise duty on diesel is levied at 8.16 per cent of ex-factory price, plus Rs 3.32 per litre, which works out to Rs 4.98 a litre.

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