The Indian government on Saturday in an unexpected move slashed excise duty on petrol and diesel by Rs 8/litre and Rs 6/litre, respectively, alongside other various important announcements. Finance Minister Nirmala Sitharaman, in a series of tweets, said, “We are reducing the Central excise duty on Petrol by ₹ 8 per litre and on Diesel by ₹ 6 per litre. This will reduce the price of petrol by ₹ 9.5 per litre and of Diesel by ₹ 7 per litre.”
She further added that it will have revenue implication of around ₹ 1 lakh crore/year for the government.
The move is highly aimed at tackling the boiling inflation in the country and simultaneously providing support to the Reserve Bank of India (RBI) to act less severely in terms of policy tightening, which could result in liquidity drying up. In the last few months, the impact of Ukraine conflict is seen in economies across the world, including India. The tensions between Russia and Ukraine has led to supply chain disruptions and shortages of various goods — resulting in inflation and economic distress.
According to experts, the move which will lead to a 8-10% cut in fuel prices, if fully passed on to consumers, is expected to lower inflation by 40bps. This along with the intervention in agri markets (wheat export ban, duty cuts, etc.) should lower inflation concerns and lowers burden on RBI to pursue aggressive tightening.
However, this will lead to a tax revenue impact of nearly Rs 80,000 crore to Rs 1 lakh crore on the government. On the other hand, few experts believe, the divestment money, surplus balance transfers, and buoyancy in the tax collections will easily help the government to balance the same.
It now stands important to see as to how state governments follow the development and if a cut from leading states like Maharastra can be seen in the coming days/weeks. All in all, the move stands as a huge releif for the countrymen.
Disclaimer: The expectations and discussions made above are from various industry experts and does not represent the organisation’s view on the matter.