Industry seeks fuel excise duty cut
India Inc. on Monday urged the government to cut excise duty on petrol and diesel immediately, observing that rising oil prices pose a high risk to the country’s economic growth trajectory.
Industry bodies Ficci and Assocham also pitched for inclusion of automobile fuel under the ambit of GST as a long-term solution to rising prices, which coupled with a weakening rupee would increase the country's import bill significantly and have a cascading impact on inflation.
“With oil prices spiralling upwards, the macro-economic risks of higher inflation, higher trade deficit and pressure on balance of payments with attended consequences for the rupee value have surfaced,” Ficci President Rashesh Shah said. He said the weakening rupee will further add pressure on the import bill, highlighting that there is also a risk of monetary policy turning hawkish, which would in turn have a bearing on growth of private investments. “At a time when Indian economy is on a recovery path, high oil prices are posing risk to India's economic growth trajectory,” Shah said.
He said going forward, the Centre should also work with states to bring petrol products under the GST regime.
“While cut in excise duty on petrol and diesel may provide temporary relief to consumers, the sustainable solution lies in the automobile fuel coming under Goods and Services Tax, which can happen only after the Centre and states together reduce their dependence on the fuel considerably,” Assocham Secretary General D S Rawat said.
He said the rising crude prices coupled with weaker rupee with cascading impact on inflation pose a big challenge for the Indian macro picture and ironically, there is little that can be done in the short term.
In the long run, India needs to rework its energy security and ensure that petrol and diesel do not remain a huge revenue resource. Rather than being a revenue source for the government, the auto fuel should drive the economic growth, Assocham said.
On Monday, Brent stood at $78.87 per barrel, up 0.5 per cent from last close.
Current account gap to widen
Meanwhile, rising crude oil prices is expected to worsen the current account deficit (CAD) to 2.5 per cent of the GDP in the current financial year, according to an SBI report.
Every $10/barrel increase in oil price results in additional import bill of $8 billion, the SBI Ecowrap report said. This in turn will decrease GDP by 16bps, increase fiscal deficit by 8bps, CAD by 27bps and inflation by 30bps, the research report said adding these are just model estimates and actuals could be much different.
"...crude prices are expected to impact imports. This will stretch the 2018-19 CAD to 2.5 per cent of GDP. The exports need further push so that the external metrics remain stable," the report said.