Centre slashes fuel taxes, sets ₹200 subsidy on LPG cylinders 

Finance Minister Nirmala Sitharaman unveiled a slew of measures to rein in runaway inflation on Saturday evening, including duty cuts on petroleum products, a ₹200 subsidy on LPG cylinders for the poor and a rejig of import duties on plastic and steel products.

A reduction in central excise duty per litre of petrol by ₹8 and ₹6 for each litre of diesel, will translate into retail prices on these fuels dropping by ₹9.5 per litre and ₹7 per litre, Ms. Sitharaman said.

The steps to check rising prices assume significance with retail inflation spiralling to 7.8% in April, the highest since the NDA government assumed office in 2014, and wholesale inflation hitting a multi-decade high of 15.1%. Economists expect the measures to help cool off inflation in May somewhere between 6.5% to 7% and supplement the central bank’s interest rate hikes to tame prices.

Reiterating the PM’s recent plea to non-NDA ruled States to cut State level duties on fuel products, Ms. Sitharaman exhorted all States, ‘especially those that had not cut State levies when central taxes on fuel products were cut the last time, to implement a similar cut and give relief to the common man’.

The latest round of fuel tax cuts, following the ₹5 and ₹10 per litre of petrol and diesel, respectively, in November 2021, will cost the government about ₹1 lakh crore a year in terms of revenue foregone.

Ms. Sitharaman invoked Prime Minister Narendra Modi’s commitment to help the poor and common man and said the number of steps taken to help these sections through his tenure, has ensured that the average inflation has remained lower than during previous governments.

“The PM has specifically asked all arms of the government to work with sensitivity and give relief to the common man,” Ms. Sitharaman, she said in a series of tweets.

“It is always people first for us!” Prime Minister Narendra Modi has said in a tweet about the measures. “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,” he said.

A subsidy of ₹200 per gas cylinder for up to 12 cylinders a year, will be granted to over nine crore beneficiaries of the PM Ujwala Yojana. “This will help our mothers and sisters and have a revenue implication of around ₹6,100 crore a year,” she said.

Petroleum and Natural Gas Minister Hardeep Singh Puri said that the LPG subsidy relief is “in addition to the fact that despite a 43% rise in Saudi CP (our LPG import benchmark) in the past 7 months, our LPG prices had gone up by just 11%”.

“The welcome reduction in excise duty will help to cool the inflation trajectory going ahead, and complement monetary policy,” said ICRA chief economist Aditi Nayar, who expects consumer level inflation to ease to the range of 6.5%-7% in May.

“The fiscal cost, while material, can be absorbed by higher than budgeted revenues through other taxes. We now estimate the tax revenues of the central government to surpass the budget estimates by at least ₹1.3 lakh crore even after the excise reduction,” she added.

Customs duties on raw materials and intermediaries for plastic products where import dependence is high, is also being cut to help reduce final product prices and assist micro, small and medium enterprises.

To arrest steel prices, the government is reducing the import duty on some raw materials and levying an export duty on some steel products. Measures are also being taken to improve Cement supplies and spruce up logistics to reduce cement costs.

KE Raghunathan, convenor of the Consortium of Indian Associations, appreciated the Centre’s move and said States like Tamil Nadu should also follow suit by reducing their levies on petroleum products. “What is important is to aid and support middle- and lower-income groups,” he said.

Setting the context for the current inflationary pressures, Ms. Sitharaman said the world is passing through difficult times with the Ukraine conflict triggering supply chain challenges and shortages of various goods.

“This is resulting in inflation & economic distress in a lot of countries… Despite the challenging international situation, we’ve ensured that there are no shortages/scarcity of essential goods. Even a few developed countries couldn’t escape some shortages/disruptions. We are committed to ensure that prices of essential items are kept under control,” the minister asserted.

Responding to Ms. Sitharaman’s slew of measures, former Finance Minister P. Chidambaram issued the following statement:

1. Raise ₹10 per litre in two months and cut ₹9.50 per litre on petrol and ₹7 per litre on diesel. This is equal to rob Peter more and pay Peter less!

2. Finance Minister’s exhortation to States is meaningless. When she cuts Central Excise by one rupee, 41 paise of that rupee belongs to the States.

3. It means that Centre has cut 59 paise and the States have cut 41 paise. So, don’t point fingers

4. 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)