Indian govt to cut fuel duty and basic goods duty to fight inflation

© Reuters. FILE PHOTO: A worker holds a nozzle to pump gasoline into a vehicle at a petrol station in Mumbai, India, May 21, 2018. REUTERS/Francis Mascarenhas

Musif Vengatil

NEW DELHI (Reuters) – India announced on Saturday a series of changes to its tax structure on key commodities to insulate consumers from higher prices amid high inflation.

Finance Minister Nirmala Sitharaman announced a cut in excise duty on petrol by 8 rupees ($0.1028) a litre and diesel by 6 rupees a litre.

In a series of tweets, she said the new petrol and diesel tax regime could cost the government around INR 1 trillion in annual revenue due to tax cuts.

The government has also removed import duties on anthracite, PCI coal and coking coal to reduce raw material costs to meet local market demand.

The latest measures will come into effect on May 22, the government said in a notice following Sitharaman’s announcement, and Sitharaman also urged state governments to follow suit with similar cuts in fuel prices under the federal scheme.

Currently, a litre of petrol costs Rs 105.41, while diesel in New Delhi costs Rs 96.67.

The government will also provide a new subsidy of Rs 200 per cooking gas cylinder to more than 90 million beneficiaries under a welfare scheme for women below the poverty line.

The subsidy will have an annual revenue impact of nearly INR 61 billion, Sitharaman said.

“Prime Minister Narendra Modi has specifically asked government departments to work sensitively to provide relief to ordinary people,” she said.

The government is also working to reduce taxes on raw materials for plastic products to reduce the cost of the final product.

Experts said the latest move could add to fiscal concerns and cast doubt on the government’s ability to meet its 2022-23 deficit target of 6.4 percent of GDP.

But inflation has become a major issue for Modi’s government ahead of elections in several Indian state assemblies this year.

A sharp rise in inflation means higher input costs for businesses.

The rate hike prompted the central bank to raise rates at an unscheduled policy meeting this month.

“Today’s decision, especially in relation to the sharp drop in gasoline and diesel prices, will positively impact various industries and provide relief to our citizens,” Modi wrote on Twitter (NYSE: ). “For us, people always come first!”

(1 USD = 77.8500 INR)

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