scorecardresearchFuel excise duty cut may help cut inflation by 40 basis points, report says

Fuel excise duty cut may help cut inflation by 40 basis points, report says

Updated: 23 May 2022, 08:52 AM IST
TL;DR.
The excise duty cut will translate into a reduction of 9.5 a litre on petrol and 7 a litre in diesel after taking into account its impact on other levies.
The excise duty cut on petrol and diesel was reduced after fuel prices remained steady for more than 40 days.

The excise duty cut on petrol and diesel was reduced after fuel prices remained steady for more than 40 days.

Economists expect a 20–40 basis point reduction in consumer inflation because of the cut in excise duties on petrol and diesel on Saturday that brought down retail prices of these fuels sharply, Economic Times reported.

On Saturday, the government cut excise duty on petrol by a steep 8 per litre and that on diesel by 6 per litre to give relief to consumers from high fuel prices that have also pushed inflation. 

Retail inflation in India surged to an 8-year high of 7.79% in April, owing to higher edible oil and fuel prices. Headline inflation is now at the highest level since the 8.33% hit in May 2014.

According to experts, a US $10/bbl increase in crude oil prices adds about 25 basis points to the baseline inflation rate.

Meanwhile, petrol and diesel prices were hiked 14 times between March 22 and April 6, after which there has been no fuel price hike. The price of crude oil has risen by over 10% in the same period.

However, the excise duty cut on petrol and diesel was reduced after fuel prices remained steady for more than 40 days.

"Inflation can come down by around 0.4%." "Prices are still high and instead of inflation of close to 30% for petrol, it will be around 20%," said Bank of Baroda chief economist Madan Sabnavis.

"The first-round impact of the excise cut will be felt for only about 10 days this month." We are waiting to see how many states follow suit with VAT cuts, which will also determine the second-round impact, "said ICRA chief economist Aditi Nayar.

Assuming global crude remains at current levels and the tax cuts are passed on fully by oil marketing companies to consumers, Nomura said the near-term impact on inflation is likely to be around 0.2 percentage points (pp) due to direct effects. "An additional impact of 0.1-0.2pp from second-round effects — that's a full impact of 0.3-0.4pp," Nomura said.

Article
These are investments that can beat inflation. 
First Published: 23 May 2022, 08:52 AM IST