India cuts fuel taxes ahead of festive season to boost economy
The excise duty on petrol has been reduced by 5 rupees ($0.0671) per litre, and that on diesel by 10 rupees ($0.1342) per litre
The Indian government on Wednesday 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 coronavirus.
The excise duty on petrol has been reduced by 5 rupees ($0.0671) per litre, and that on diesel by 10 rupees ($0.1342) per litre, the government said in a statement. The tax relief comes on the eve of the Hindu festival of Diwali, which marks the beginning of a busy festive season in India, typically marked by increased consumer spending.
Indian government will face a revenue loss of between 550 billion rupees ($7.38 billion) and 600 billion rupees from the cut in taxes, a government source told Reuters, declining to be named as the detail is not public.
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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 NR Bhanumurthy, economist and vice-chancellor at Bengaluru-based BR 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.
Spiking global oil prices have pushed up the retail prices of petrol and diesel in India to a record high this month.
Global oil prices surged to $86.40 a barrel on 26 October- the highest since October 2014 - battered by the hit to economies from the Covid-19 pandemic, although they since eased to about $82.5 per barrel.
Taxes are a large component of fuel prices in India: a litre of petrol comes at 110.04 rupees while diesel comes at 98.42 rupees in Delhi. Before the cut to prices announced on Wednesday, taxes made up about 52% of the price of petrol and about 47% of that of diesel.
($1 = 74.5400 Indian rupees)
($1 = 74.5240 Indian rupees)
