Excise duty cut on fuel threatens fiscal deficit: Finance Ministry


Excise duty cut in petrol and diesel prices hit government revenue

New Delhi:

India faces near-term challenges in managing its fiscal deficit, sustaining economic growth, reining in
Controlling the current account deficit while maintaining inflation and the fair value of the Indian currency, said the monthly economic review released by the Finance Ministry on Monday.

Government revenues have come down after the cut in excise duty on diesel and petrol, posing a risk to the budget level of the gross fiscal deficit, the report said, adding that it will affect the currency in the long run. Can do.

“An increase in the fiscal deficit could widen the current account deficit, exacerbate the impact of costly imports, and weaken the value of the rupee, further widening external imbalances, creating the risk of a cycle (lower at this point).” There may be widespread deficit and weak currency,” the monthly report said.

It also noted that there is a need to carefully manage near-term challenges without sacrificing hard-earned macroeconomic stability.

Imported components of high retail inflation in India have mainly been increased global prices of crude and edible oils. Locally, the onset of the summer heat wave has also contributed to the rise in food prices.

“However, going forward, weakening global growth and increasing supplies from the Organization of the Petroleum Exporting Countries (OPEC) may lead to a moderation in international crude oil prices.
It remains uncertain and there are upside risks to oil prices as OPEC’s supply will not be sufficient to cover the shortfall caused by a possible withdrawal of Russian crude from the market.”

Finally, as the heat wave gradually sends new crops to the markets with the expected onset of monsoon, food prices and consequently headline retail inflation are expected to decline, it said on an optimistic note.

Thus, rationalization of non-capital expenditure has become important not only to protect growth supporting capital expenditure but also to avoid fiscal slippage.

“The risk of rupee depreciation persists as long as net foreign portfolio investor (FPI) outflows in response to a hike in policy rates and quantitative tightening in advanced economies continue as they continue to moderate inflation,” the report said. are fighting a long battle to do so,” the report said.

Notably, the US central bank last week raised key policy rates by 75 basis points against expectations of a hike of 50 basis points to address multi-decade high inflation in the country.

It has been observed that inflation in advanced economies has been rising for more than a year while growth in emerging market economies has been a recent phenomenon.

In India, retail inflation has remained above the Reserve Bank of India’s upper tolerance band of 6 per cent for the fifth consecutive month in May, while the Indian central bank expects it to remain high till the third quarter. Current fiscal year 2022-23, before moderating. Moreover, domestic wholesale inflation has been in double digits for over a year now.

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