This is the fourth cut in petrol prices since March. Oil firms review the price of petrol every two weeks. While petrol price has been deregulated since June 2010 and the price is market determined, the government still controls the price of diesel, and allows only minor revisions.
After Wednesday's revision, prices stand as follows: New Delhi - Rs 63.09 per litre; Mumbai - Rs 69.73; Chennai - Rs 65.90; Kolkata - Rs 70.35.
The price of petrol was last revised on April 15, when it was reduced by Rs1 per litre without taxes.
Tuesday's price cut comes after three consecutive rate reductions on the back of falling international oil prices. The price cut is the steepest since December 2008 when rates were slashed by Rs 5.
Announcing the reduction, Indian Oil Corp (IOC), the nation's largest fuel retailer, said that since the last price change, international prices have declined from $116.61 per barrel to $107 a barrel.
Rupee-US dollar exchange rate too improved from Rs 54.51 to a US dollar to Rs 54.26. "Thus, it has been decided to pass on the benefit to customers and accordingly the aforesaid reduction in the retail selling price of petrol is being affected," an IOC statement said.
(With inputs from PTI)