Govt may look at cutting excise duties if oil spurts

MoS for Finance Jayant Sinha says the cut in excise duty will put some pressure on the fiscal situation, which will have to be dealt with using "dynamic adjustment as we go along”

The government may look at reducing excise duties on petrol and diesel in case crude oil prices rise over $80 per barrel, Minister of State for Finance Jayant Sinha said.

"As of now, our thinking is that oil is going to be in the $50-80 band, which will keep the numbers in the range that they are in right now... If oil prices were to spike... the contingency plan then is--because we are not necessarily going to pass through all of that to consumers--then we will

start to take off some of these excise taxes," Sinha said in a panel discussion on a television channel.

The cut in the excise duty, if crude oil prices spike, will put some pressure on the fiscal situation, which will have to be dealt with using "dynamic adjustment as we go along", Sinha said.

The average price of India's crude oil basket rose to $56.43 a barrel in February from $46.59 in January. The average price of India's crude oil basket in March so far is $59.10 per barrel.

Since November, the government has hiked the excise duty by 6.50 rupees per ltr on diesel and by 7.75 rupees a ltr on petrol. Though plunging crude oil prices has allowed the government significantly reduce its subsidy burden, a possible hike in domestic fuel prices will have to be dealt with "very carefully", Sinha said.

"Obviously, we want to go to market-linked prices and we have certainly moved in that direction and we are going to stay the course on that. If there is a massive spike, for instance which will have very inflationary consequences, obviously we have to think about that very carefully because inflation is something we really want to be able to manage because that immediately and directly affects the poor," Sinha said.

The minister said the government has to keep in mind the needs of the poor, and therefore has to maintain the current subsidy level. "Under any circumstances, it is no way that we will curtail what is needed for the poor and the deprived... We have to maintain subsidy levels and we have to ensure a basic safety net for everybody in this country," Sinha said.

Going ahead, the government plans to deal with urea and kerosene subsidies, he added.

On the fiscal front, Sinha said the fiscal deficit target for 2015-16 (Apr-Mar) at 3.9% of the gross domestic product is very credible, especially since the government needs to increase public spending and boost growth. The government wants to first focus on increasing capital spending to boost growth, which is likely to reduce the revenue deficit, Sinha said, adding that widening the tax base and job creation are important priorities of the government. -Cogencis