The government on Tuesday cut excise duty on petrol and diesel by Rs 2 a litre to tame inflation and shield consumers from the surging prices.
On Monday, a litre of petrol in Delhi was selling at Rs 70.83 and diesel at Rs 59.07, their highest since January 16, as the opposition accused the government of failing to check rising inflation and faltering on economic front.
The economy was slipping and the government had failed to generate jobs, it said. Senior BJP leader Yashwant Sinha added fuel to fire, accusing the Modi government of refusing to acknowledge the downturn in the economy.
What does the cut in excise duty mean for the consumer?
Petrol and diesel will be cheaper by Rs 2 a litre from Wednesday when the first excise duty cut by the Modi government takes effect.
The decision could check retail prices from going up as global crude rates rise. Since August 1, retail prices for petrol had gone up 8.4% and diesel by 6.4% in New Delhi. Last month, petrol prices in Mumbai had crossed levels it had touched before the Narendra Modi government took charge in 2014.
What will it cost the government?
The move, analysts said, could widen the country’s fiscal deficit. The cut duty will cost Rs 130 billion over the next six months, the finance ministry said on Twitter.
“The cut in excise duty has modestly increased the likelihood of fiscal slippage this year,” Aditi Nayar, an economist at ICRA, the India arm of credit rating agency Moody’s, said.
Analysts warned that India’s deficit could widen to between 3.5% to 3.7% of gross domestic product in the fiscal year ending March 2018, against an estimate in the budget of 3.2%.
The ministry had earlier said no to cut in excise duty on petroleum products.
Why cut excise duty now?
The government, which had between November 2014 and January 2016 raised excise duty on petrol and diesel nine times to take away gains arising from plummeting global prices, was criticised for not reducing the excise duty despite a sustained rise in fuel prices since early July.
In all, duty on petrol was hiked by Rs 11.77 per litre and on diesel by 13.47 a litre in those 15 months that helped government’s excise mop-up more than double to Rs 242,000 crore in 2016-17 from Rs 99,000 crore in 2014-15.
“This decision (to cut excise duty) has been taken by the government in order to cushion the impact of rising international prices of crude petroleum oil and petrol and diesel on retail sale prices of petrol and diesel as well as to protect the interest of common man,” a government statement said.