Centre’s excise duty cut on petrol, diesel to cost Rs 45,000 cr to exchequer: Report

By: |
November 04, 2021 3:11 PM

The excise duty cuts on diesel and petrol will cost Rs 45,000 crore and lead to a 0.3 percentage point widening on the Centre's fiscal deficit, a foreign brokerage said on Thursday.

The brokerage said it now expects the fiscal deficit to come at 6.5 per cent

The excise duty cuts on diesel and petrol will cost Rs 45,000 crore and lead to a 0.3 percentage point widening on the Centre’s fiscal deficit, a foreign brokerage said on Thursday. Going by the overall consumption, the costs of the surprise move which came after months of concerns over high payouts at filling stations  for the entire fiscal will come at Rs 1 lakh crore or 0.45 per cent of GDP, economists at Japanese brokerage Nomura said in a report.

For the remaining months of the ongoing FY22, the cost will come at Rs 45,000 crore, which leads to an upward review of the fiscal deficit target. The brokerage said it now expects the fiscal deficit to come at 6.5 per cent as against the earlier expectation of 6.2 per cent and underlined that it will still be lower than the budgeted 6.8 per cent target.

The central government on Wednesday announced a cut in excise duty on petrol by Rs 5 per litre and diesel by Rs 10 per litre on the eve of Diwali. The move only partly reverses the hike in duties in 2020 by Rs 13 per litre for petrol and Rs 16 per litre on diesel, following a steep drop in oil prices, and comes on the heels of higher crude prices pushing retail prices to record highs, it said.

The brokerage said “parsimonious” spending by the government so far this fiscal has helped limit fiscal deficit in H1FY22 to 35 per cent of the budgeted target, compared with a 15 per cent overspend of budget in H1FY21. The tax cuts should lower headline CPI inflation by 0.14 percentage points due to direct effects and up to 0.3 percentage points, if indirect effects are included. Although, there are offsets from elevated input costs, reopening pressures and an ongoing energy crunch, it said.

Politically, high inflation remains one of the top concerns on the minds of voters, it said adding that the moves will help keep voter discontent at bay.
The timing ahead of the move will also help consumption, the brokerage said, retaining its 9.2 per cent real GDP growth for FY22.
It will also reduce the burden on monetary policy at the margin but with inflationary pressures broadening amid the continued growth recovery, the central bank will continue with its normalisation efforts, it said

Do you know What is India expected to grow 10 pc during current fiscal: NCAER Director General Poonam Gupt,FinMin releases Rs 9,871 cr grant to 17 state, Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1US employers added a sluggish 210,000 jobs in November
2Forex reserves down by USD 2.713 mn to USD 637.687 bn
3Rs 374.78 cr payment pending for reprocessing under PM-KISAN since 2019: Centre