Centre reduces excise duty on petrol by Rs 8/ltr, diesel by Rs 6/ltr

Inflation bites exchequer as move will reduce FY23 revenue by Rs 85,000 cr

The Modi government, on Saturday, slashed central excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 litre, a move that will bring relief as household incomes continue to be hit by inflation.

Making the announcement on Twitter, Finance Minister Nirmala Sitharaman said that this will reduce the price of petrol by Rs 9.5 per litre and of diesel by Rs 7 per litre. This will lead to revenue foregone for the centre of about Rs 1 trillion per annum, she said, and asked states to also reduce their duties on petrol and diesel.

Sitharaman also said that the Centre is also reducing the customs duty on raw materials and intermediaries for plastic products where import dependence is high and that this will result in reduction of cost of final products.

“Similarly we are calibrating customs duty on raw materials & intermediaries for iron & steel to reduce their prices. Import duty on some raw materials of steel will be reduced. Export duty on some steel products will be levied,” she said.

As per a senior official, for FY23 specifically with six weeks already gone, the revenue foregone will be Rs 85,000 crore due to the petrol and diesel excise duty cut.

“I wish to exhort all state governments, especially the states where reduction wasn’t done during the last round (November 2021), to also implement a similar cut and give relief to the common man,” Sitharaman tweeted.

Running through the Centre’s recent moves in face of rising global commodity prices due to Russia’s invasion of Ukraine, Sitharaman said that the fertiliser subsidy this year will rise by an additional Rs 1.1 trillion on top of the budgeted Rs 1.05 trillion.

“Our government is devoted to the welfare of the poor. We’ve taken a number of steps to help the poor and middle class. As a result, the average inflation during our tenure has remained lower than during previous governments,” she tweeted.

Sitharaman acknowledged that the war in Europe had disrupted supply chains and commodity prices, causing inflationary pressure across the word. “Despite the challenging international situation,we’ve ensured that there are no shortages/scarcity of essential goods. Even a few developed countries couldn’t escape some shortages/disruptions,” she said.

“The welcome reduction in excise duty will help to cool the inflation trajectory going ahead, and complement monetary policy. We project May 2022 retail inflation at between 6.5-7 per cent. The fiscal cost, while material, can be absorbed by higher than budgeted revenues through other taxes,” said Aditi Nayar, Chief Economist with Icra Ltd. Nayar added that even with the latest cuts, centre’s tax revenue will surpass budget estimates by at least Rs 1.3 trillion.