Higher petrol, diesel consumption can help govt cut fuel cess without impacting revenues: ICRA

The chief economist stated the company’s forecasts recommend that petrol consumption will likely be 6.7 per cent greater in 2021-22 when put next with the pre-pandemic ranges in 2019-20, whereas diesel will likely be 3.3 per cent decrease.

An increase in petrol and diesel consumption may also help the federal government lower cesses on the fuels by Rs 4.5 a litre with out impacting income collections of FY21, and assist cool off the strain on inflation, home ranking company ICRA stated on Friday.

Petrol consumption is estimated to extend 14 per cent in 2021-22 and diesel by 10 per cent on the decrease base, rise in mobility and financial restoration, ICRA stated. The ranking company added that it’ll lead to a further Rs 40,000 crore in income for the federal government by greater collections of the cess.

If the federal government chooses to forego this extra cess assortment of Rs 40,000 crore, it could possibly cut back the cesses by Rs 4.5 per litre, and assist comprise the inflation scenario which has breached the Reserve Financial institution of India’s (RBI) goal band in Might, ICRA stated.

Petrol costs have breached over Rs 100 per litre in lots of locations, and diesel costs are additionally closing in on the three-digit mark in some pockets, which has led to a large clamour for decreasing the cesses imposed on the fuels to profit the end-consumer.

The cess was launched in early 2020 as a instrument of producing further income amid a steep fall in world crude costs. Whereas the crude costs have firmed up, the federal government has maintained the cess, resulting in the upper affect on the end-consumer’s funds.

Its Chief Economist Aditi Nayar stated, “Greater consumption of fuels ought to help an increase within the oblique taxes levied on them, affording a window for a partial reversal within the cess hikes that had been imposed final yr.”

The company’s calculations recommend that the cesses levied on petrol and diesel might be decreased by Rs 4.5 per litre, whereas sustaining the entire cess revenues of the Authorities of India on these fuels in FY2022 on the FY2021 degree, she added.

“Such a lower within the cess charges would provide some aid to family budgets and ease the inflationary pressures associated to the rising world crude oil costs,” Nayar stated.

The chief economist stated the company’s forecasts recommend that petrol consumption will likely be 6.7 per cent greater in 2021-22 when put next with the pre-pandemic ranges in 2019-20, whereas diesel will likely be 3.3 per cent decrease.

The company stated beneficial prospects of a worldwide financial rebound introduced on by the vaccine rollout have resulted in an almost uninterrupted enhance within the worldwide crude oil costs since January 2021.

A weaker rupee, greater cesses imposed by the GoI since March 2020 and the rise in value-added tax (VAT) charges by greater than three-fourths of the state governments in 2020, have seen the common retail promoting costs of petrol and diesel within the 4 metro cities enhance to record-high ranges of Rs 99.54 and Rs 92.03 per litre, respectively, as on June 25, 2021, it stated.

Within the present state of affairs the place home sentiment demand has been singed by the affect of the second wave of COVID-19, the all-time excessive retail costs of fuels are each weighing upon disposable incomes and consumption, and feeding into inflationary pressures, it stated.

A lower of Rs 4.5 per litre may also help in decreasing the headline inflation by 0.10 per cent, it stated, estimating that it expects Shopper Worth Index (CPI)-based inflation at 5.3 per cent for 2021-22.

In Might 2021, the CPI inflation rose to six.3 per cent, exceeding the higher threshold of the Financial Coverage Committee’s (MPC) medium time period goal of 2-6 per cent.

The company reminded that within the final three financial coverage critiques (February 2021, April 2021 and June 2021), the RBI’s rate-setting panel has highlighted the inflationary pressures created by the upper cesses and VAT charges introduced by the Centre and the state governments final yr, and the necessity to unwind the identical to ease the associated fee push pressures.

“A discount in gasoline costs generated by a lower within the cesses imposed, would assist dampen the inflationary pressures, and forestall inflationary expectations from getting entrenched at a better degree, thereby affording financial coverage continued house to help a revival in progress,” Nayar stated.

The Union authorities is estimated to have collected Rs 3.2 lakh crore in income from the cesses in 2020-21, which is about to develop to Rs 3.6 lakh crore courtesy the upper consumption, it stated.

The company added that the federal government has already collected Rs 80,000 crore in April and Might, and wishes to gather one other Rs 2.4 lakh crore to keep up it at FY21 ranges.