A foreign brokerage on Thursday said the cut in excise duty on diesel and petrol will cost Rs 45,000 crore and increase the Centre’s fiscal deficit by 0.3 per cent. Economists at Japanese brokerage Nomura said the surprise move, after months of worries over higher payments at filling stations for the full fiscal year, would cost Rs 1 lakh crore, or 0.45 per cent of GDP, for the entire fiscal, economists at Japanese brokerage Nomura said. report good.
For the remaining months of the current fiscal year 2012, the cost will come to Rs 45,000 crore, leading to a review of the fiscal deficit target. The brokerage said it now expects the fiscal deficit to come down to 6.5 per cent as against the earlier expectation of 6.2 per cent and underlined that it will still remain short of the budget’s target of 6.8 per cent.
The central government on Wednesday announced a reduction in excise duty on petrol by Rs 5 per liter and on diesel by Rs 10 per liter on the eve of Diwali. The move partially reverses the hike in 2020 by Rs 13 per liter for petrol and Rs 16 per liter on diesel, following a sharp fall in oil prices, and higher crude oil prices pushing retail prices to record highs. Pushing comes on the heels, it said. The brokerage said the “conventional” spending by the government so far this fiscal has helped limit the fiscal deficit to 35 per cent of the budget target in H1FY22, as compared to 15 per cent higher budgetary expenditure in H1FY21.
Headline CPI inflation from the tax cut should be 0.14 percentage points lower due to direct impact and 0.3 percentage point lower if indirect effect is included. The increased input costs, however, are offset by pressure to reopen and the ongoing energy crisis, it said. Politically, high inflation is one of the top concerns in the minds of voters, it said, adding that the move will help keep voter discontent at bay.
The brokerage said the timing before the move will also help consumption, maintaining its 9.2 per cent real GDP growth for FY22. It will also ease the burden on monetary policy on margins, but with inflationary pressures continuing to improve with growth, the central bank will continue with its normalization efforts, it said.
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