economy
India takes a ‘huge hit’ on tax revenue to keep fuel prices from surging during the Iran war
India takes a huge tax revenue hit as it cuts fuel excise duties to shield consumers from soaring oil prices caused by the Iran war.
TL;DR
- Indian government's tax revenues have taken a 'huge hit' due to fuel excise duty cuts.
- Central excise duties on petrol and diesel were cut by 10 rupees per liter each.
- Petrol excise duty reduced to 3 rupees/liter (from 13), diesel to 0 rupees/liter (from 10).
- Duties on diesel exports (21.5 rupees/liter) and aviation turbine fuel (29.5 rupees/liter) were raised to ensure domestic availability.
- India, a major oil importer, faces rising energy costs and panic-buying due to supply disruptions.
- The government is absorbing the cost of rising energy prices to keep retail fuel prices stable.
- The tax cuts will reduce losses for oil companies, which were around 24 rupees/liter for petrol and 30 rupees/liter for diesel.
- Economic risks include a widening fiscal deficit if higher costs are absorbed, or inflation and tempered growth if retail prices are raised.
- Private-sector activity in India slowed in March due to softer domestic demand, Middle East conflict, unstable markets, and inflationary pressures.
- Cost inflation is near a four-year high.
- If oil prices settle at $85-$95 a barrel, it could lead to outflows of $40-$50 billion (over 1% of GDP) and trim economic growth to 6.5%.