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Excise duty cut on fuel both a fiscal and political call


NEW DELHI: For the last several weeks, any question to a government official or an oil company executive about the possibility of a reduction in excise duty on fuel elicited the now familiar response – “it’s a political call”. But it was as much as a political call as an economic decision given that the Centre wanted its fiscal position to be comfortable before effecting the cut ahead of crucial assembly polls in Uttar Pradesh and other states. After all, the annual impact of the cut is seen to be of the order of Rs 1.5 lakh crore with the dent to the exchequer during the remaining part of the current financial year pegged at Rs 62,500-65,000 crore. “If the revenue situation wasn’t comfortable, maybe we would not have been in a position to go for this kind of a reduction,” a government source said. The latest numbers released by the Controller General of Accounts showed that the Centre’s tax revenue jumped 27% during the first half of the current financial year to Rs 10.8 lakh crore – which is 60% of the full year target. There is expectation that direct tax collections will be higher than the budget estimate. Besides, GST collections are back on track after slipping in the backdrop of the second wave of the pandemic. What has provided further cushion is a 33% increase in excise duty collections to over Rs 1.7 lakh crore during the first half, led by taxes on petrol and diesel. So far, it has managed to rein in spending and has a cushion to push additional capital expenditure, although there may be some belt-tightening in some “wasteful segments” to keep the overall fiscal numbers in check. During the Centre’s first half, fiscal deficit was contained at 35% of the full year target, the best in several years. Amid the overall rosy economic picture, oil prices and its inflationary impact were proving to be a sore point and were seen to be fanning inflationary expectations with economists already talking about second order impact on freight and other segments of the economy. All along the government had maintained that inflation numbers were not reflecting the impact of high pump prices given the low weight in the indices. While everyone, including the Reserve Bank of India, had warned about the inflationary pressures in the economy, it wasn’t until Wednesday that the finance ministry finally acknowledged it. “In recent months, crude oil prices have witnessed a global upsurge. Consequently, domestic prices of petrol and diesel had increased in recent weeks exerting inflationary pressure,” it said in a statement, adding that the reduction in prices will help the poor and the middle class, while providing a further boost to consumption.


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