Centre can cut fuel cess by ₹4.5 per litre without revenue loss: ICRA

Reducing record fuel prices will ease inflation pressures, boost disposable incomes and consumption, says the rating agency’s chief economist Aditi Nayar.

Updated - June 25, 2021 03:16 pm IST

Published - June 25, 2021 03:09 pm IST - NEW DELHI

ICRA logo

ICRA logo

The Union Government has room to cut the Cess levies on Petrol and Diesel by ₹4.5 per litre without losing revenues, to ease inflationary pressures, rating agency ICRA said on Friday.

Stressing that consumer sentiment had been singed by the second COVID-19 wave in the country, ICRA said that the record retail fuel prices are ‘weighing upon disposable incomes and consumption' and feeding into inflationary pressures. Retail inflation had crossed the central bank’s comfort zone at 6.3% in May.

The revenue loss entailed by the rate cuts would be offset by the rise in fuel consumption expected over 2021-22 making this a revenue-neutral measure, the agency’s chief economist Aditi Nayar pointed out.

“Benefitting from the anticipated rise in mobility and economic recovery aided by an acceleration of vaccine coverage, ICRA has forecast the YoY growth in the consumption of petrol and HSD (high-speed diesel) at ~14% and ~10%, respectively. Our forecasts suggest that consumption this year will be 6.7% higher for petrol and 3.3% lower for HSD,” she said.

Aggregate revenue from fuel taxes is expected to rise by around 13% to ₹3.6 lakh crore this year, with additional revenue of ₹40,000 crore. Foregoing the ₹40,000 crore can support a reduction of ₹4.5 per litre, ICRA estimated in a note.

“Such a cut in the cess rates would offer some relief to household budgets and ease the inflationary pressures related to the rising global crude oil prices,” Ms. Nayar emphasised, stressing that this will also give the central bank more room to focus on growth imperatives rather than fret about high inflation.

In the three monetary policy reviews since February, the Monetary Policy Committee, chaired by Reserve Bank of India governor Shaktikanta Das, has reiterated concerns about inflationary pressures created by the higher cesses and VAT rates announced by the Centre and the State governments on fuel last year, and the need to unwind the same to ease cost push pressures.

While global crude oil prices are on an upswing since this January, riding on hopes of a rebound in the global economy, India’s record fuel prices are also driven by a weaker Rupee and the higher cesses imposed by the central government since March 2020, as well as the increase in Value Added Tax rates by more than three-fourths of the State governments in 2020, ICRA said.

0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in


Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.