The increase, the third since Prime Minister Narendra Modi lifted diesel price controls in October, seeks to cash in on lower world oil prices to bolster strained government finances without stoking inflation.
The allocation of these resources to fund 15,000 km of road projects would spur economic activity and boost employment, the government said in a statement.
The higher excise duties come into effect from Jan. 2.
The government last raised excise duties on petrol and diesel by 2.25 rupees a litre and 1 rupees a litre respectively on Dec. 2.
India's fiscal deficit was 5.25 trillion rupees ($83 billion) during April-November, or 98.9 percent of the full-year target. The deficit was 93.9 percent during the same period a year ago.
($1 = 63.35 rupees)
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