The government on Tuesday slashed the excise duty on petrol and diesel by ₹2 per litre, effective from October 4, in an effort to infuse some festive cheer in a slowing economy and dispel the RBI’s worries about inflationary pressures that are holding back interest rate cuts.
“This decision has been taken to cushion the impact of rising international prices of crude petroleum oil and petrol and diesel on retail sale prices of petrol and diesel as well as to protect the interest of common man,” the Finance Ministry said in a statement, days after senior ministers repeatedly defended the Centre’s high tax levies on petroleum products.
Both Petroleum Minister Dharmendra Pradhan and Finance Minister Arun Jaitley had reiterated several times in recent weeks that the government was not considering a cut in the excise duties in the face of rising fuel prices.
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The Finance Minister has also dared Opposition-ruled States to slash State-level taxes on petroleum products and forego their share of the exchequer’s revenue from excise levies.
According to official data, the retail selling prices (RSP) of petrol and diesel in Delhi rose to ₹70.88 per litre and ₹59.14 per litre respectively, on October 3, 2017. These prices were ₹63.13 and ₹53.47, respectively, three months ago.
“This rise in the prices of petrol and diesel is also reflected in WPI inflation, which has increased to 3.24% for the month of August 2017, as compared to 1.88% for the month of July 2017,” the government statement added. “This also prompted the Government to act swiftly in this regard.”
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The exchequer stands to lose about ₹13,000 crore during the remaining part of this financial year on account of the two rupee cut in excise duty .
“There would be an impact on revenue, but there would also be a beneficial impact on inflation because petroleum is an input in transport,” D.K. Srivastava, Chief Policy Advisor at EY India told The Hindu . “This will help the monetary authority (RBI) to reduce the repo rate in the future.”