New Delhi: Flagging upside pressure to inflation, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) Friday called for a reduction in taxes and duties imposed on petrol and diesel by central and state governments.
The statement comes at a time when prices of petrol in some states have crossed Rs 100 per litre due to a rise in international crude prices coupled with high taxes imposed by the central and state governments. Taxes currently constitute 58 per cent of the retail selling price of petrol and around 52 per cent of the retail selling price of diesel.
“The rising trajectory of international commodity prices, especially of crude, together with logistics costs, pose upside risks to the inflation outlook. Excise duties, cess and taxes imposed by the Centre and States need to be adjusted in a coordinated manner to contain input cost pressures emanating from petrol and diesel prices,” the MPC said.
While the Modi government levies excise duty and cess on fuel, states levy value added tax (VAT). Both sides have been reluctant to slash rates even amid rising international prices as these taxes are a major source of revenue.
While keeping key policy rates unchanged, the MPC has forecast that the full-year inflation will be at 5.1 per cent.
Replying to a query on fuel prices and their inflation impact, RBI Governor Shaktikanta Das said at a press conference there is a need for coordinated action. “It is for the Centre and the states to take whatever decision. They also have their own constraints with regard to financing of their fiscal deficit. I am sure the government is also monitoring and keeping a watch on the inflation scenario,” he said.
Rise in rural Covid cases adds to risks, growth forecast lowered to 9.5%
The rapid spread of Covid-19 in rural areas poses risks to growth, Das said in a video statement.
He said though both urban and rural demand have declined over the last two months, the impact has been limited.
However, the MPC lowered India’s growth forecast for 2021-22 by one percentage point — to 9.5 per cent from 10.5 per cent.
“The sudden rise in Covid-19 infections and fatalities has impaired the nascent recovery that was underway, but has not snuffed it out. The impulses of growth are still alive,” said Das. “Aggregate supply conditions have shown resilience in the face of the second wave. We will continue to think and act out of the box, planning for the worst and hoping for the best.”
Das said the second Covid wave has seen “unexpectedly higher rates of morbidity and mortality relative to the first wave”, and the breakout of the highly transmissible mutant strains across both urban and rural areas has led to fresh restrictions on activity across a large swath of the country.
But unlike the first wave, the impact on economic activity is expected to be relatively contained in the second wave, with restrictions on mobility being regionalised and nuanced, he said.
Special lending window for hospitality, aviation, beauty parlours
The RBI also announced a special Rs 15,000-crore window for contact intensive sectors that were adversely impacted by the pandemic. This is in addition to the Rs 50,000-crore liquidity window that was provided to the healthcare sector last month.
This window, announced Friday, will be available for hotels and restaurants, tourism sector enterprises like travel agents and tour operators, aviation ancillary services like ground handling and supply chain, and other services that include private bus operators, car repair services, rent-a-car service providers, event and conference organisers, spa clinics, and beauty parlours and salons.
Banks can borrow from the RBI at repo rate and then lend to these segments. The loans can be for upto a tenor of three years.
(Edited by Manasa Mohan)