According to a foreign brokerage, the cut in the excise duty on diesel and petrol will cost Rs 45,000 crore to the exchequer and lead to a 0.3 percentage point widening on the Centre’s fiscal deficit.
On the eve of Diwali on Wednesday, the central government announced a cut in excise duty on petrol by Rs 5 per litre and diesel by Rs 10 per litre.
Economists at Japanese brokerage Nomura said in a report, the costs of the move which came after months of concerns over high payouts at filling stations for the entire fiscal will come at Rs 1 lakh crore or 0.45 per cent of GDP.
The fiscal deficit is now expected to come at 6.5 per cent as against the earlier expectation of 6.2 per cent, which will still be lower than the budgeted 6.8 per cent target.
The brokerage further says that the move only partly reverses the hike in duties in 2020 by Rs 13 per litre for petrol and Rs 16 per litre on diesel, following a steep drop in oil prices, and comes on the heels of higher crude prices pushing retail prices to record highs.
The tax cuts should lower headline CPI inflation by 0.14 percentage points due to direct effects and up to 0.3 percentage points, if indirect effects are included.
