The record excise duty hike on petrol and diesel will not help the government bridge the fiscal gap as planned, nor will it help boost economic growth as consumption demand will further be crippled, warns a report.
Despite crude prices trading at a two decades low, the government had earlier this week hiked excise duty on petrol by Rs 10 a litre and on diesel by Rs 13 a litre to mop up nearly Rs 1.6 lakh crore in additional revenue this fiscal.
With this the new effective excise duty on petrol is Rs 32.98/litre and diesel is Rs 31.83/litre.
Following the record hike in excise duty on petrol and diesel, the total incidence of taxation on auto fuels jumped to 70 per cent of the retail price. But the retail prices are not impacted as the hike completely wipes out the fall in crude prices.
“We continue to expect fiscal slippage of 2 per cent of GDP in overall fiscal deficit despite the oil tax hike of 0.7 per cent of GDP or around Rs 1.6 lakh crore,” Wall Street brokerage Bank of America Securities India said in a note on Friday.
Its 200 bps fiscal slippage is based on the assumption of another 30 bps fiscal stimulus to small and medium-sized enterprises (SMEs), state-run banks and realtors.