Last Updated : Sep 05, 2018 02:08 PM IST | Source:

Modi government to focus on fiscal prudence; will not cut taxes on petrol, diesel

Despite record fuel prices, Centre not yet thinking about tax cuts to avoid fiscal slippages.

Shreya Nandi @shreyanandi15

The Centre is unlikely to cut excise duty on petrol and diesel despite sky-rocekting fuel prices pummelled by a sliding rupee as the government intends to remain focussed on fiscal prudence, a top government official said on Tuesday.

“We cannot reach a point of twin deficit. Current account deficit (CAD) is already widening and an excise duty cut will disturb fiscal deficit (target). We’d rather remain fiscally prudent,” the official told Moneycontrol on condition of anonymity.

Global crude oil price has been on a rise in the last few months and is hovering above $70 per barrel.

Falling value of rupee against dollar, as well as escalated crude oil price has inflated India’s import bill as it is the largest imported commodity into the country.

Further, higher import bill has widened the current account deficit - a key measure of a country’s macroeconomic stability and an excess of sum of exports of goods and services, as well as income receivable over imports and income payable.

While the current account deficit had ballooned to 6.7 percent of GDP in 2012-13, the Narendra Modi-led government consistently maintained the deficit to contain it under 2 percent of GDP annually. Experts believe that CAD will worsen to cross 2 percent of GDP in the quarter ended June as against 1.9 percent in 2017-18.

The official further said that the rupee is expected to come down in the near future.

“Rupee is falling because of the trade war and rising oil prices. The US-China trade war has been a major factor behind this slide. This is further hurting Asian currencies,” the official said.

On Tuesday, the rupee closed to a record low of Rs 71.58 per dollar.

At this point, the government can only take advantage of the situation by taking steps to boost exports, the official added.

Rising oil prices continues to remain a concern with petrol price in Mumbai crossing Rs 86 per litre and diesel being sold at Rs 75.74 per litre on Tuesday.

A higher fuel price brings risk of an increased inflation, which could ultimately result in the Reserve Bank of India (RBI) hiking key interest rates, which makes borrowing more expensive.

However, the official said that reducing excise duty on fuel will massively widen the fiscal deficit.

Lower revenue from oil could mean that the government may have to curtail its expenditure to stay on the path of fiscal prudence.

“We can't cut expenditure on social sector schemes such as Ayushman Bharat (health insurance scheme), or on building rural roads. We cannot reduce defence expenditure or interest payments if we decide to cut excise of petrol and diesel,” the official explained.
First Published on Sep 4, 2018 05:44 pm
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