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Fiscal concerns check slashing of excise duty on petrol, diesel

Dilasha Seth & Indivjal Dhasmana/New Delhi 15 Sep 17 | 01:12 AM

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The finance ministry has ruled out excise duty cuts in petrol and diesel, given the Centre's need for money, despite rising retail prices of fuels.

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“We are not even thinking about it. The finances do not allow us to cut the rates," a senior ministry official said. 

The government also took refuge in the fact that global crude prices have stabilised.

“(Global) prices have stabilised and will soften in the coming days. With daily price revision in place, it will be immediately passed on to the consumers," Petroleum Minister Dharmendra Pradhan said in a tweet.

Over half of total excise duty collection comes from petrol and diesel. The Centre’s fiscal deficit touched 92 per cent of the full-year Budget estimate after the first four months of the financial year, compared to 74 per cent in the same period last year. This was mainly due to front-loading of expenditure. 

State Bank of India group Chief Economist Soumya Kanti Ghosh said a one per cent cut in excise duties on petrol and diesel would affect the Centre’s revenue by Rs 13,000-15,000 crore. This means up to 2.7 per cent of the budgeted fiscal deficit, at Rs 5.46 lakh crore. At a time when the target of reining in the deficit at the aimed 3.2 per cent of gross domestic product (GDP) is already a challenge.

Expenditure could be cut to meet this target but that could affect the GDP growth rate. Which, at 5.7 per cent in the first quarter of 2017-18 is already the lowest in the three years of the Modi government. And, if this growth rate falls, achieving the 3.2 per cent deficit target would become more difficult, Ghosh said. 

Also, say experts, there is uncertainty over various revenue receipts. Aditi Nayar, the principal economist with rating agency ICRA, said, “In addition to the lower surplus being transferred by the Reserve Bank of India, there remains likely that the eventual inflows from disinvestment and telecom might be lower than the budgeted target."

There is also, she said, lack of clarity at present regarding the buoyancy in the collection from the new goods and services tax this year. Till the monthly flow from this stabilises, she felt, the government might not be inclined to reduce excise duty on fuels.

Devendra Pant, chief economist with India Ratings, said even as petroleum had become costlier, the headline inflation numbers were under control due to less pressure from other items.

This might allow the government to retain the rates of excise duty on petroleum. If headline inflation exceeded four per cent, the government might think of these steps, he said. Consumer Price Index inflation rose to a five-month high of 3.36 per cent in August, from 2.36 per cent in July.

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