Tax cut on fuel positive for inflation management: RBI Governor Shaktikanta Das

New Delhi: Reserve Bank Governor Shaktikanta Das on Wednesday ruled out risk-taking over the inflation forecast at 5.3 per cent for the current fiscal, saying that the recent cut in excise duty on diesel and petrol as well as supply-side on food better management of issues. The front has contained inflationary expectations.

He said these measures are very positive for inflation management.

After months of calls to reduce taxes on fuel, the government last week cut excise duty on diesel and petrol by Rs 10 and Rs 5 per liter respectively. Most of the states followed suit and the cumulative effect is that in most of the markets, petrol is running under Rs 100 per liter right now. Even at the lower rates, duties and taxes are more than 50 per cent of the retail price.

Before the cut, the duty contributed to over 60 per cent of the retail prices of the fuel.

Even Das himself has been urging the government to reduce taxes and duties to help the central bank meet its inflation mandate.

“The cut in excise duty on petrol and diesel is positive for inflation. In fact, it is quite positive for (management) inflation,” Das said.

Inflation has been a supply-side issue for a long time, and luckily, this time has been well managed, which has helped bring food inflation under control, he said.

However, the governor cautioned that core inflation still remains high and needs to be addressed.

Addressing an event organized by financial daily Business Standard, Das said, “Traditionally our inflation is mainly due to supply side factors, but luckily the government has addressed it?”

“Food inflation first started with edible oils, then moved to pulses and then fuel inflation was added to it. But after addressing the supply side issues well, we should be able to meet our forecast, Pre-excise duty was cut by 5.3 per cent for the year ended March.

“All these measures have contributed to the moderation of retail inflation and augurs well for its management,” Das said.

Hence, food inflation overall now appears to be under control, he said. On inflation expectations, Das, who completed his first three-year term on December 10, said, “As far as we are concerned, our expectation is that it will be in line with our estimate of 5.3 per cent for the full fiscal, and this The price cut in petrol and diesel prices was not in the forecast.”

Now, it looks like this is very positive for inflation management, Das said, “so, we stick to our final estimate”.

Besides, the RBI chief cautioned about high core inflation. “As far as we’re concerned, core inflation has always been high, and that’s a policy challenge, and we’re monitoring core inflation developments very closely.” Read also: Prices of pulses slashed after slash in petrol, diesel and edible oil prices, check latest prices

Globally, the outlook for inflation is dire, given rising energy and fast-rising prices of commodities such as crude and steel. “Although some of them are already peaking, we have to be very careful,” he said. Read also: Ethanol price hike: Cabinet approves price hike of Rs 1.47 for blending in petrol

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