BofA hints Central government may reduce auto fuel taxes by Rs 5/litre

Last updated on February 26th, 2021 at 04:43 am

The central government decided to bring some relief to the consumers amid soaring fuel prices. Analysts at Bank of America (BofA) claimed that the center might lift auto fuel taxes by Rs 5/litre as the global crude oil price has been floating around $60 per barrel. In its recent market forecast, BofA said, “We have raised our FY22 Center’s fiscal deficit by 30 basis points to 7.5% of GDP, expecting 5/litre oil tax cut.” Analysts added that Rs 5/litre tax cut would significantly hit the Centre’s revenue, bringing it down by about Rs 71,760 crore.

The Indian government is currently importing crude at $62/barrel, which is more than the mid-December price of $50/barrel. The hike in crude prices is believed to be the outcome of recovery in global demand and voluntary production cuts introduced by major oil-exporting nations. Due to a slump in demand, Indian crude oil import was ranging between $19-$44/barrel in the first half of FY21, when crude import bill fell 57% annually to $22.5 billion.

“We have retained our 9% FY22 growth forecast with the boost to consumption from oil tax cuts likely to offset the impact of the pressure on yields from a higher fiscal deficit,” the financial consultancy firm said. Observing how the country’s oil imports would increase its current account deficit, the company likewise ramped up its forecast for Reserve Bank of India (RBI) open market operations by $9 billion to $48 billion.

In his recent address to the nation, the RBI Governor Shaktikanta Das on Thursday urged both Centre and State governments for a coordinated move to bring down taxes levied on petrol and diesel prices. Das said, “There is a need for coordinated action between the Centre and States because there are inherent taxes levied by both.”

The Governor, speaking at event organised by Bombay Chamber of Commerce emphasised that divided reduction of taxes was the need of the hour. He added that tax cuts would bring greater strain on the revenues of both the governments, given increase in their expenses due to the COVID-19 pandemic stress.

“So the revenue requirement and the compulsion of the governments are fully understood. But having said that, the impact on inflation also is something which comes in from of the fact that petrol and diesel prices do have an impact on the cost of manufacturing, production…,” the governor said.