How duty cut on your fuel has put Modi government in a very tight spot
ECONOMICTIMES.COM|
Updated: Oct 04, 2017, 01.09 PM IST
Under pressure from common people and opposition parties, the government has bitten the bullet. By cutting excise duties on petrol and diesel by Rs 2 per litre from Wednesday, the government will take an annual hit of Rs 26,000 crore in tax revenue. It said it had to cut duties to cushion consumers from soaring fuel prices that have hit an all-time high in Delhi.
It is a hard decision for the government which is already facing strong headwinds. Since the slowed-down economy has become a major issue, the government had been considering to administer a stimulus worth Rs 50,000 crore. But now it will be too constrained to do any big spending.
GDP growth slipped to 5.7 per cent in the first quarter, the lowest in three years. The government reported a fiscal deficit of 96.1 per cent of the target for the current fiscal year.
Add to that the problems with Goods and Services Tax (GST). Traders have claimed Rs 65,000 crore input credit for the July GST returns, nearly 70 per cent of the Rs 95,000 crore that the government had earned from the first filing of GST.
Brokerage firm CLSA said the duty cut would slash central government's revenues by 16 bps of the GDP on an annualised basis.
The Current Account Deficit, the imports exceeding its exports, has also reached a four-year high of 2.4 per cent of the GDP.
Due to the government's weak financial position, Jaitley had ruled out any cut in excise duty on petrol and diesel to cushion the spike in rates. He said the government needed revenue to support public spending without which growth would suffer. "You should remember that the government needs revenue to run. How will you build highways?," he said.
With the overall pessimism in economy, by cutting fuel duties the government has further restricted itself. It seems the government has taken this step due to political compulsions as people had begun feeling the pinch of rising fuel prices. Petrol and diesel prices have hit three-year highs in some cities.
It is a hard decision for the government which is already facing strong headwinds. Since the slowed-down economy has become a major issue, the government had been considering to administer a stimulus worth Rs 50,000 crore. But now it will be too constrained to do any big spending.
GDP growth slipped to 5.7 per cent in the first quarter, the lowest in three years. The government reported a fiscal deficit of 96.1 per cent of the target for the current fiscal year.
Add to that the problems with Goods and Services Tax (GST). Traders have claimed Rs 65,000 crore input credit for the July GST returns, nearly 70 per cent of the Rs 95,000 crore that the government had earned from the first filing of GST.
Brokerage firm CLSA said the duty cut would slash central government's revenues by 16 bps of the GDP on an annualised basis.
The Current Account Deficit, the imports exceeding its exports, has also reached a four-year high of 2.4 per cent of the GDP.
Due to the government's weak financial position, Jaitley had ruled out any cut in excise duty on petrol and diesel to cushion the spike in rates. He said the government needed revenue to support public spending without which growth would suffer. "You should remember that the government needs revenue to run. How will you build highways?," he said.
With the overall pessimism in economy, by cutting fuel duties the government has further restricted itself. It seems the government has taken this step due to political compulsions as people had begun feeling the pinch of rising fuel prices. Petrol and diesel prices have hit three-year highs in some cities.
