CEA INDICATES A REDUCTION IN FUEL TAXES IS UNLIKELY

NEW DELHI: The government is unlikely to cut fuel taxes despite petrol crossing ₹100 per litre mark in all metros, hinted Krishnamurthy Subramanian, chief economic adviser to the finance ministry. A cut in fuel taxes, he contended, is unlikely to have a significant impact on retail inflation because of its low weightage in the index.

The bigger concern is food inflation, not fuel, Subramanian said in an interview on Tuesday.

“If you look at the last 6-7 years, anywhere between 35-60% of contribution to retail inflation comes from food inflation,” he said. “Weightage of petrol and diesel in CPI (Consumer Price Index) is less than 3% while weightage of food is about 50%. Even if you consider secondround effects (of the fuel price hike), the weightage is about 5%. So if you do an analysis, it becomes very clear that the contribution is not that large.”

On being asked whether a cut in fuel taxes is off the table, Subramanian said: “When we look at it from the inflation perspective, what is the contribution (of petrol and diesel) to inflation is something we have to keep in mind. So we should speak based on data on all these aspects.”

Subramanian said the rising crude oil prices is reflecting on overall inflation. Brent crude shot up from less than $30 per barrel last year to nearly $78 per barrel this month. Retail inflation cooled marginally in June to 6.26% while remaining above the upper limit of the central bank’s inflation target for the second straight month.