Mumbai: boom fuel prices Economists at the country’s largest lender SBI said on Tuesday that people are spending less on non-discretionary items like groceries, health and utilities.
A note written by the group’s chief economic advisor Soumya Kanti Ghosh said the government should focus on cutting taxes on oil, which is driving up petrol and diesel prices.
Petrol prices crossed the Rs 100 per liter mark across the country, while diesel too is closing in on the three-figures per litre. As per estimates, over Rs 40 per liter goes to the central and state governments as tax and excise duty.
The increase in taxes was done after the fall in global crude oil prices, but has not been rolled back despite the rise in crude oil prices again.
Ghosh said, “As consumers are spending more on fuel, this is driving up health spending. Our analysis of SBI Card spend indicates that non-discretionary health expenditure is being used to accommodate the increased expenditure on fuel. Expenses have come down significantly.”
“Indeed such spending has increased spending on other non-discretionary goods, such as grocery and utility services, to the extent that there has been a substantial decline in demand for such products,” he said.
Ghosh warned that higher spending on fuel also has an impact on inflation, which has breached the upper end of the RBI’s comfort band for the second month running for June, adding that a 10 per cent rise in prices would Inflation increases by 0.50 percent. Headline consumer price inflation.
The note said there is a need for “immediate cuts in oil through tax rationalization”, failing which consumer spending on non-discretionary goods will continue to be distorted and exclude discretionary spending.
Meanwhile, Ghosh also wondered whether the CSO data showing headline inflation for May at 6.30 per cent at the time of local lockdown in many parts of the country was a “data deviation”.
In support of skepticism expressed over the data divergence, he said, most commodities in food and non-food have registered a decline in June as compared to May, and core inflation for May also declined substantially.
The note said that even though inflation has moderated marginally, the levels are still high and adding to the domestic challenges with the decline in financial savings.
Ghosh estimated that during the second wave period (June 2021 vis-मा-vis March 2021), the number of districts with accumulated outflows could be double that of the first wave.
Various key indicators, including port cargo traffic, freight traffic, railway freight, manufacturing PMI, steel consumption, deteriorated sequentially in June as compared to their levels in May.
The note said the second wave is showing signs of being a “thick tail” and is not over yet, as daily cases exceed 40,000 with Maharashtra and Kerala reporting high infections.
Vaccination is the key and the country has given both doses to only 5.3 per cent of its population, adding that even if the vaccination rate were to be doubled to 7 million a day, that time would be March 2022. Every adult is vaccinated.
A note written by the group’s chief economic advisor Soumya Kanti Ghosh said the government should focus on cutting taxes on oil, which is driving up petrol and diesel prices.
Petrol prices crossed the Rs 100 per liter mark across the country, while diesel too is closing in on the three-figures per litre. As per estimates, over Rs 40 per liter goes to the central and state governments as tax and excise duty.
The increase in taxes was done after the fall in global crude oil prices, but has not been rolled back despite the rise in crude oil prices again.
Ghosh said, “As consumers are spending more on fuel, this is driving up health spending. Our analysis of SBI Card spend indicates that non-discretionary health expenditure is being used to accommodate the increased expenditure on fuel. Expenses have come down significantly.”
“Indeed such spending has increased spending on other non-discretionary goods, such as grocery and utility services, to the extent that there has been a substantial decline in demand for such products,” he said.
Ghosh warned that higher spending on fuel also has an impact on inflation, which has breached the upper end of the RBI’s comfort band for the second month running for June, adding that a 10 per cent rise in prices would Inflation increases by 0.50 percent. Headline consumer price inflation.
The note said there is a need for “immediate cuts in oil through tax rationalization”, failing which consumer spending on non-discretionary goods will continue to be distorted and exclude discretionary spending.
Meanwhile, Ghosh also wondered whether the CSO data showing headline inflation for May at 6.30 per cent at the time of local lockdown in many parts of the country was a “data deviation”.
In support of skepticism expressed over the data divergence, he said, most commodities in food and non-food have registered a decline in June as compared to May, and core inflation for May also declined substantially.
The note said that even though inflation has moderated marginally, the levels are still high and adding to the domestic challenges with the decline in financial savings.
Ghosh estimated that during the second wave period (June 2021 vis-मा-vis March 2021), the number of districts with accumulated outflows could be double that of the first wave.
Various key indicators, including port cargo traffic, freight traffic, railway freight, manufacturing PMI, steel consumption, deteriorated sequentially in June as compared to their levels in May.
The note said the second wave is showing signs of being a “thick tail” and is not over yet, as daily cases exceed 40,000 with Maharashtra and Kerala reporting high infections.
Vaccination is the key and the country has given both doses to only 5.3 per cent of its population, adding that even if the vaccination rate were to be doubled to 7 million a day, that time would be March 2022. Every adult is vaccinated.
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