Central government’s decision on Saturday to cut excise duty On petrol and diesel at ₹8 and ₹6, respectively, a late admitted inflation was driven in significant measure by April’s multi-year high fuel prices. Coming more than six months after its last duty cut on the eve of Diwali – the latest cut is a welcome move to ease the mounting cost burden on producers and consumers. Indian basket of crude oil with price State-run oil marketing companies raised retail fuel prices over a 16-day period beginning March 22, with a surge of more than 33% since November, and the massive jump in February in the wake of the Ukraine war. had grown rapidly. Inflation based on the Consumer Price Index rose to a 95-month high of 7.8% last month, largely as a result of higher fuel prices and accelerating food costs, while wholesale price gains hit a multi-decade high of 15.1%. S&P Global’s April PMI surveys showed that both services and manufacturing companies actually flagged rising costs as a potential loss of demand. A desperate RBI decided to stop waiting for government intervention to pacify supply-side factors driving inflation and instead opted to raise interest rates earlier this month.
The extent of concern about inaction on the part of the government was reflected in a two-day meeting of the Monetary Policy Committee earlier this month, where one member said: “Government supply-side action is the result of future rate hikes, production sacrifices and borrowing.” Can also reduce costs.. There is a spurt in both central and state taxes… they are getting space to cut taxes on fuel.” Now that the Center has worked to ease some of the inflationary pressure arising from the higher excise component in fuel prices, the onus is on the states to address their political differences over the government’s previous approach to taxing the fuel. and help ease the burden. common man by reducing their respective state taxes as well. With Europe showing no immediate signs of easing the war, the economic fallout, particularly on global energy and food costs, remains highly uncertain and points to rising risks of slowing growth as well as sharp inflation. In such a volatile scenario, fiscal measures that help ease price pressures and leave an extra buck or two in the pocket of the consumer can only aid in easing significant consumption demand in the economy. Ultimately, all states must realize that the best way to protect their revenue interests would be to ensure that the pace of growth in the economy remains fully supported. It’s a moment that calls everyone on deck. The sooner policy makers at different levels of government and of all political colors understand this and work together, the better.