Economy

Under criticism for rising inflation, Modi government announces cut in excise duty on fuel, LPG subsidies

May 21, 2022
Bharat Times

New Delhi: Announcing several steps to curb inflation, the Narendra Modi government on Saturday reduced the excise duty on petrol and diesel by Rs 8 and Rs 6 per liter respectively.

It has also decided to increase the fertilizer subsidy for farmers and give a subsidy of Rs 200 on cooking gas. More than nine crore beneficiaries of Pradhan Mantri Ujjwala Yojana.

This step has been taken at a time when the country is going through a crisis. record breaking inflation, India’s annual inflation rate on the basis of Consumer Price Index (CPI) increased to 8 year high 7.79 percent in April. Meanwhile, inflation based on wholesale prices came up 15.08 percent, which is the highest in the same month in at least 9 years.

Finance Minister Nirmala Sitharaman announced the decisions on Twitter on Saturday, saying the cut in excise duty on fuel would “reduce the price of petrol by Rs 9.5 per liter and diesel by Rs 7 per litre”.

According to his tweet, the reduction in excise duty on petrol and diesel will have a revenue impact of about Rs 1 lakh crore annually on the government.

Sharing Sitharaman’s tweet, Prime Minister Narendra Modi wrote on Twitter:It’s always people first for us! Today’s decisions, especially those relating to the significant drop in petrol and diesel prices, will have a positive impact on various sectors, providing relief to our citizens and furthering the ‘Ease of Living’.

Before the announcement, petrol was priced at Rs 105.41 per liter and diesel at Rs 96.67 per liter in the national capital. The price of petrol in Mumbai was Rs 120.51 per liter while the price of diesel was Rs 104.77 per litre.

while the government had dropped Excise duty on both auto fuels last November, prices were still very high. After Saturday’s cut, the excise duty on petrol will be Rs 19.90 per liter and that on diesel will be Rs 15.80 per liter.

Sitharaman also urged the state governments to reduce the Value Added Tax (VAT) on both the auto fuels: “I wish all the state governments, especially those states, where the reduction was not done during the last round (November 2021), I would like to encourage you to apply as well. Give similar deduction and relief to the common man.”

Last month, Chief Economic Advisor V. Ananth Nageswaran said that If the global crude oil price remains above $100 a barrel for a quarter or two, the government will have to act on fuel excise duty, and the government and oil marketing companies will have to share the burden.

The decision to cut excise duty was also one of the demands of the Reserve Bank of India (RBI), which took a surprise move earlier this month. Enhanced The key policy rate – the buyback or representative rate – ranges from 40 basis points to 4.40 per cent to contain a sharp jump in inflation. Repo rate is the rate at which commercial banks borrow from RBI.

Aditi Nair, Chief Economist, ICRA Ltd., and The independent and professional investment information and credit rating agency told ThePrint that “The welcome reduction in excise duty will further help in moderating inflationary momentum and complement monetary policy”.

“We anticipate CPI inflation for May 2022 at 6.5-7.0 per cent. Fiscal costs, while material, can be absorbed by more than budgeted revenue through other taxes. We now estimate that the Indian government’s tax revenue will exceed budget estimates by at least ₹1.3 trillion (Rs 1.3 lakh crore) even after the reduction in excise duty,” she said.

Read also: Breaking inflation records, Modi government plans to counter criticism ahead of anniversary and elections

Import duty on fertilisers, LPG subsidy, raw materials reduced

To “protect” farmers amid a global rise in fertilizer prices, Sitharaman said the government will increase fertilizer subsidy by Rs 1.10 lakh crore to Rs 2.15 lakh crore.

According to the World Bank blog, fertilizer prices Increased After an increase of 80 percent from the previous year, up to about 30 percent by the beginning of 2022.

“Rising prices are driven by a confluence of factors, including rising input costs, supply disruptions due to sanctions (Belarus and Russia) and export restrictions (China),” the website said.

Sitharaman said that the government has also decided to give a subsidy of Rs 200 per gas cylinder up to 12 cylinders to the beneficiaries of Pradhan Mantri Ujjwala Yojana. He said this would cost the government an additional Rs 6,100 crore.

In addition, the government will also reduce customs duty on raw materials and middlemen for plastic goods where India’s dependence is high.

“Import duty on some steel raw materials will be reduced. Export duty will be levied on some steel products,” said Sitaraman.

(Edited by Gitanjali Das)

Read also: Inflation raised monthly spending for 92% of Indian households in last 3 months, finds online survey