Steep cut in petrol, diesel excise duty: But why?
On Saturday, common man of India rejoiced with latest decision by the Government of India. There has been a steep cut announced in excise duty of fuels in the country. This will bring down the prices of petrol by Rs 9.5 per litre and prices of diesel are slashed down by Rs 7 per litre. Finance Minister Nirmala Sitharaman made the announcement on Twitter amid triggered rise in prices of essential commodities as the economy suffers spiraling inflation.
7/12 We are reducing the Central excise duty on Petrol by ₹ 8 per litre and on Diesel by ₹ 6 per litre.— Nirmala Sitharaman (@nsitharaman) May 21, 2022
This will reduce the price of petrol by ₹ 9.5 per litre and of Diesel by ₹ 7 per litre.
It will have revenue implication of around ₹ 1 lakh crore/year for the government.
Subsidy on LPG cylinder
The government has also announced that Pradhan Mantri Ujjwala Yojana beneficiaries will get a subsidy of Rs 200 per cylinder of LPG (Liquified Petroleum Gas). This would be valid for up to 12 cylinders per year.
Why the excise duty cut?
The excise cut, as said by Finance Minister Nirmala Sitharaman, are in line with the commitment of Modi government to provide support to common man of India. Prime Minister Narendra Modi also tweeted lauding the decision. “Today’s decisions, especially the one relating to a significant drop in petrol and diesel prices will positively impact various sectors, provide relief to our citizens and further ‘Ease of Living’.”
The decision to cut the excise duty on fuels is aimed to tackle the rising inflation in the country. Covid-19 pandemic, followed by Ukraine war has created a global fuel and food crisis. This is the direct reason of rising fuel prices in the country, Sitharaman noted.
As fuel prices have direct impact on prices of retail goods, it is expected that reducing the excise duty on fuels will help in lowering prices of essential goods.
In the same line, RBI (Reserve Bank of India) had last month hiked repo rate by 40 bps to 4.4 per cent. This was the first rate move by RBI in two years and first hike in 4 years, surprising many experts. The off-cycle decision was taken to check rising inflation.