It is always people first for us,” said Prime Minister Narendra Modi as his Government cut excise duty on petrol by a record Rs 8 per litre and that on diesel by Rs 6 per litre to give relief to consumers from high fuel prices that have also pushed inflation to a multi-year high. “The significant drop in petrol and diesel prices will positively impact various sectors, provide relief to our citizens and further ‘Ease of Living’,” he tweeted.
By taking the bold decision to provide relief to the common man at the cost of an expected revenue loss of Rs 1 lakh crore, the Modi Government has put the Oppositionruled states in the dock. The cut was in addition to the cut announced by his Government in November last year on petrol and diesel by Rs 5 and Rs 10, respectively. At that time also, the Prime Minister had asked the non-BJP-ruled states to follow the example of the BJP-ruled states by cutting the VAT imposed by them, but to no avail.
Unfortunately, while the people at large have breathed a sigh of relief, the Modi-detractors have resorted to their usual blame-game and disinformation campaign.
Congress leader and former finance minister P Chidambaram, for instance, ridiculed the Centre’s call for states to follow suit. “It means that Centre has cut 59 paise and the states have cut 41 paise. So, dont point fingers,” he wrote on Twitter. “The true cut will be if the Centre cuts from the cess it levies on petrol and diesel (which is not shared with the states)” He had to eat a humble pie when Finance Minister Nirmala Sitharaman clarified that the Centre’s cut was not from the divisible pool of the excise duty and the burden of the cuts was borne by the Centre alone.
“I stand corrected,” he admitted and reluctantly endorsed the Centre’s advice. It was only after this that the Congress-ruled states of Chattisgarh and Rajasthan announced marginal cuts in the VAT on petroleum products imposed by them.
While cheers from people at large are expected, top political scientists and leading economist agree that PM Modi has once again demonstrated that good politics is good economics. At the cost of increasing fiscal deficit, the fuel tax cut has come not a day too soon to tame the mounting inflation.
According to Barclays, the move will shave at least 25 basis points (bps) off headline inflation while the subsidy on gas cylinders will lop off 26 bps from the consumer inflation Additionally, the import duty cuts on intermediate goods such as plastics and steel, and supply side measures to reduce the price of cement are all likely to help in reducing latent price pressures in the economy, Barclays added.
In a separate report, Kotak Economic Research said the complementary fiscal and monetary policies to manage the adverse growth-inflation mix will likely lower inflation than earlier expected with a gradual growth recovery. The Centre has quickly made amends in the wake of rapidly climbing inflation, both wholesale and retail (15.08 per cent and 7.79 per cent for April).
Meanwhile, it is just as well that three non-BJP states of Kerala, Rajasthan and Chhattisgarh have acted on cue by cutting their levies, showing the way for the rest.
