All hands on deck: On Centre’s duty cut on petro products

After Centre's duty cut, States must do the same with their taxes

May 24, 2022 12:20 am | Updated 12:20 am IST

The Union government’s decision on Saturday to cut the excise duty on petrol and diesel by ₹8 and ₹6, respectively, is a belated acknowledgement that April’s multi-year highs in inflation were spurred in significant measure by high fuel prices. Coming more than six months after its last duty reduction — on Deepavali eve — the latest cut is a welcome step to ease the burgeoning cost burden on producers and consumers. With the price of the Indian basket of crude oil having risen by more than 33% since November, and with a bulk of the surge coming in the wake of the Ukraine war in February, state-run oil marketing companies had raised retail fuel prices sharply over a 16-day period starting March 22. Largely as a result of the higher fuel prices and quickening food costs, inflation based on the Consumer Price Index accelerated to a 95-month high of 7.8% last month, while wholesale price gains soared to a multi-decade high of 15.1%. S&P Global’s April PMI surveys showed that both services and manufacturing companies had in fact flagged the surging input costs as a potential dampener of demand. A desperate RBI decided to stop waiting for Government intervention to cool the supply-side factors fanning inflation and opted instead to raise interest rates earlier this month.

The extent of concern about the inaction on the part of the Government was reflected at the Monetary Policy Committee’s two-day meeting earlier this month where a member observed: “Government supply-side action can also reduce future rate rises, output sacrifice and borrowing costs. Both central and State taxes are buoyant... giving them space to cut taxes on fuels.” Now that the Centre has acted to ease some of the inflationary pressure emanating from the high excise duty component in fuel prices, the onus is on the States to sink their political differences over the Government’s past approach to taxing fuels and help reduce the burden on the common man by paring their respective State taxes as well. With the war in Europe showing no immediate signs of easing, the economic fallout, particularly on global energy and food costs, remains highly uncertain and continues to point to the rising risks of faster inflation coupled with slower growth. In such a volatile scenario, fiscal measures that help cool price pressures and leave an extra rupee or two in the consumer’s pocket can only aid to undergird vital consumption demand in the economy. Ultimately, all States must realise that the best way to safeguard their revenue interests would be to ensure that the growth momentum in the economy as a whole remains well supported. This is a moment that calls for all hands on deck. The sooner policymakers at the different levels of government, and of all political hues, realise this and act in concert, the better.

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