Moneycontrol
Oct 04, 2017 01:21 PM IST | Source: Moneycontrol.com

Govt revenue loss up to Rs 13K cr in FY18 due to excise duty cut; negative for markets

Although the government is committed to meet its fiscal deficit target, analysts on D-Street feel it would be a tough task. The Reserve Bank of India (RBI) will also refrain from cutting rates in October.

Govt revenue loss up to Rs 13K cr in FY18 due to excise duty cut; negative for markets

Moneycontrol News

The government on Tuesday reduced the basic excise duty on petrol and diesel by Rs 2 per litre, a move which is likely to cheer consumers, benefits oil marketing companies (OMCs) but is unlikely to give comfort to the government or markets, suggest experts.

As per the ministry, with this reduction, revenue loss from excise duty will be Rs 13,000 crore in the remaining part of financial year FY18.

The Finance Ministry said that the decision was taken in a bid to cushion the impact of the rise in global crude oil prices and to protect the interests of the common man.

With fiscal deficit number already under strain, a revenue loss of Rs13000 crores will make it tough for the government to meet the fiscal deficit target of 3.2 percent.

Although the government is committed to meet its fiscal deficit target, analysts on D-Street feel it would be a tough task. The Reserve Bank of India (RBI) will also refrain from cutting rates in October.


Explainer: How Daily Revision Of Petrol, Diesel Prices Works

The government reported a fiscal deficit of Rs 5.25 lakh crore for April-August or 96.1% of the budgeted target for the current fiscal year that ends in March 2018.

Last week, the government said that it will stick to its borrowing and fiscal deficit targets for this fiscal, indicating a gross borrowing of Rs 2.08 lakh crore, which is in line with the target laid out in the Budget.

“Having exhausted nearly 98% of fiscal deficit in the first five months of FY18, around 50% cut in RBI dividend on a YoY basis, large shortfall expected in budgeted divestment proceeds and Spectrum revenues and uncertainty surrounding the mop-up of indirect tax receipts in the wake of disruptions in supply chains after GST roll out, I wonder what will happen to fiscal deficit number for FY18,” Ajay Bodke, CEO & Chief Portfolio Manager (PMS) at Prabhudas Lilladher Pvt. Ltd told Moneycontrol.

“Higher than budgeted fiscal deficit would lead to additional budgeted borrowing in 2H FY 18 and exert pressure on interest rates & inflation, further pushing back any hopes of a revival of private sector capex and add to the earning woes of India Inc. Certainly a negative from equity market perspective,” he said.

Oil marketing companies stand to benefit after the government slashed basic excise duty. Crude prices have jumped more than 10 percent in the last one month and is currently hovering around USD 59 to a barrel.

The price of petrol has jumped by Rs 7.8 per litre since July 4, while diesel rates have touched an all-time high after rates went up by Rs 5.7.

“Domestic auto fuel price has increased sharply on account of rise in the international petrol and diesel prices – positive read through for oil marketing companies (OMCs – IOCL, BPCL, and HPCL) as this would not distort with free pricing as was speculated in media reports,” Sharekhan said in a note.

Jimeet Modi, CEO, SAMCO Securities said that it is a good news for consumers and negative for the government since it shall increase the deficit gap. “Also good sentimentally from an OMC perspective since it’s clear that fuel price deregulation stands a test like this and there shall be no deviation from the same,” he said.
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