New govt measures could lower RBI’s burden of aggressive tightening*
Govt says:
1) We are reducing the Central excise duty on Petrol by INR 8 per litre and on Diesel by INR 6 per litre. This will reduce fuel prices by INR 7-10 per lt . Will have a revenue impact of ~INR 1 trillion a year for the govt * (0.4% of GDP)*. At present tax bouyancy is quite strong and should most likely help fund this.
2) Further we’ll give a subsidy of INR 200 per gas cylinder to over 90mn crore beneficiaries under govt scheme. This will have a revenue implication of around INR 61bn a year.
3) Over INR 2.1 trillion worth of fertiliser subsidies provided to our farmers, to cushion them from rising fertilizer prices globally.
4) We are also reducing the customs duty on raw materials & intermediaries for iron & steel, plastic products, resulting in reduction of cost of final products. Export duty on some steel products will be levied (can impact Tata Steel/ JSPL)
5) Measures taken to reduce the cost of Cement (negative for cement cos)
Overall, a much needed move by the govt to support consumers/ growth. This along with intervention in agri markets (wheat export ban, duty cuts, etc) suggests that fiscal policy is also contributing to lower supply side inflation, reducing RBI’s burden – right approach
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