India cuts fuel taxes ahead of festive season to boost economy
Excise duty on petrol reduced by Rs5 per litre, and that on diesel by Rs10
The Indian government yesterday reduced taxes on petrol and diesel in a bid to improve consumer sentiment, as Asia’s third-largest economy recovers from the shocks of severe lockdowns to control the spread of the Covid-19.
The excise duty on petrol has been reduced by Rs5 ($0.0671) per litre, and that on diesel by Rs10 ($0.1342) per litre, the government said in a statement.
The tax relief comes on the eve of Diwali, which marks the beginning of a busy festive season in India, typically marked by increased consumer spending.
The federal government will face a revenue loss of between Rs550 billion ($7.38 billion) and Rs600 billion from the cut in taxes, a government source told Reuters, declining to be named as the detail is not public.
Recent months have witnessed a steady growth in consumer spending in India with a relaxation on curbs on travel and business operations due to a dip in the number of coronavirus cases.
But high fuel prices have been hurting the margins of corporates as well as farmers, who contribute a significant chunk to the economy. The cut in fuel taxes is likely to come as a boost to manufacturers and farmers.
“Given that inflation expectation is building up, there was a need to relook at the tax component, said N.R. Bhanumurthy, economist and vice chancellor at Bengaluru-based B.R Ambedkar School of Economics. “This will cool down the inflation expectation to some extent, which will augur well for sustained GDP (gross domestic product) growth.” India, the world’s third-biggest oil importer and consumer, ships in about 85% of its oil needs from overseas.
Taxes are a large component of fuel prices in India: a litre of petrol comes at Rs110.04 while diesel comes at Rs98.42 in Delhi. Before the cut to prices announced yesterday, taxes made up about 52% of the price of petrol and about 47% of that of diesel.