Reducing tariffs on petrol and diesel due to revenue deficit: Experts

The Centre’s decision to reduce excise duty on petrol and diesel will put pressure on the revenue deficit, which is projected at 6.4 percent of GDP for the current fiscal year, experts said.

On Saturday, the government reduced excise duty on petrol by a record Rs 8 per liter and on diesel by Rs 6 to provide relief to consumers in the face of high fuel prices, pushing inflation to a multi-year high.

The reduction in taxes on petrol and diesel will lead to a revenue loss of about Rs 1 lakh crore every year for the government.
In addition to the Rs 1.05 lakh crore fertilizer subsidy in the budget (for the current financial year), the government has provided Rs 1.10 lakh crore to further increase the farmers from the price hike due to the shortage of fertilizers.

While this, with the low-budget transfers of the RBI’s surplus and the need for additional spending on food and fertilizer subsidies, would put the fiscal deficit on the upside, a large part of it would be offset by higher taxes on account. A low growth and low nominal GDP growth estimate embedded in the FY’23 Budget Estimates (BE) for taxes, the ICRA said in a report.

“We expect the fiscal deficit to widen slightly to 6.5 percent of GDP in FY2023, compared to a BE of 6.4 percent,” it said.
In her budget speech on February 1, Finance Minister Nirmala Sitharaman said that the revenue deficit was projected at 6.4 per cent of GDP in 2022-23, in line with the broader path of revenue consolidation announced last year to reach a revenue deficit. Below 4.5 percent between 2025-26.
“In determining the level of the fiscal deficit in 2022-23, I am aware of the need to nurture growth through public investment, to become stronger and more sustainable,” he said.

Sumon Chowdhury, chief analytical officer at Acuité Rating and Research, said the reduction in excise duty and the revision of import and export rates for some products, including steel products, would have an adverse effect on the financial situation, which could be worse than 6.4 per cent of the budget. For higher debt.

This could lead to slower growth in exports as products like iron ore and pellets have contributed to strong export growth in the last two fiscal years, he said.

According to a BofA Global Research report, the recent tariff measures taken by the government are expected to put pressure on the revenue deficit.
“Increasingly news articles pose a greater risk to our estimated investment earnings, with the recent Rs 300 billion dividend approved by the RBI to the government being less than the budget. After all, we now see a 40-50bp fiscal slippage risk on FY23, “he said.

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