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NEW DELHI: India’s retail inflation based on consumer price index (CPI) jumped to a 3-month high of 6.52% in January, making it necessary for the government to step and tame the rise.
According to a report by Reuters, Centre may consider reducing taxes on some items such as maize and fuel in response to the central bank’s recommendations to help rein in the soaring inflation.
However, a final call on this may be taken only after the CPI numbers for February are released, the report said quoting sources.
The January CPI numbers have already fuelled speculations of a further rate hike in April. January’s retail inflation was above the RBI’s upper target limit of 6% for the first time since October last year.
Tax cut to tame prices
As per the inflation data released by the ministry of statitics and planning implementation (Mospi) earlier this week, prices of milk, cereals, maize, soy oil, fuel continue to remain high and could add to worries in near term.
Importing maize attracts a basic duty of 60%, hence, reducing import duties may help in bringing down prices, the Reuters report said.
In terms of oil, India imports almost 3/4th of its requirement. A cut in taxes by the central government could push pump operators to pass on the benefits to retail consumers and help bring down inflation.
Even though global crude oil prices have eased and stabilised in recent months, fuel companies have not passed on the lower import costs to consumers or companies trying to make up for previous losses.
“We have some recommendations from them (central bank) which is a usual practice,” a second source quoted by Reuters said.
“This has been one of the ways in which government and RBI has coordinated to create a stable macroeconomic environment. Fuel and maize are part of duties. We will probably wait for at least one more print before we decide on these,” he added.
Measures adopted in past
This is not the first time that the Centre is considering slashing excise duties/ taxes to tame the rising inflation.
Last year, when retail inflation scaled to an eight-year high of 7.8% in April and the wholesale inflation crossed 15% in wake of the Russia-Ukraine war, RBI moved in to hike repo rate in an off-cycle meet. Since then, the central bank has constantly hiked key lending rates in a bid to curb the rising prices.
In addition, the government slashed excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 a litre when the global crude oil prices were soaring to record highs.
The government had also reduced import duty on some key raw materials and inputs for the steel and plastic industry to reduce the cost pressures being felt as a result of geopolitical crisis.
It had also set a limit of 100 lakh tonnes on sugar exports to ensure adequate stocks. From June 1, 2022, only 10 million tonnes sugar export is permitted. The curbs have been extended till October 2023.
Further, the government had also slapped a ban on wheat exports to maintain food security and cool prices.
(With inputs from agencies)
According to a report by Reuters, Centre may consider reducing taxes on some items such as maize and fuel in response to the central bank’s recommendations to help rein in the soaring inflation.
However, a final call on this may be taken only after the CPI numbers for February are released, the report said quoting sources.
The January CPI numbers have already fuelled speculations of a further rate hike in April. January’s retail inflation was above the RBI’s upper target limit of 6% for the first time since October last year.
Tax cut to tame prices
As per the inflation data released by the ministry of statitics and planning implementation (Mospi) earlier this week, prices of milk, cereals, maize, soy oil, fuel continue to remain high and could add to worries in near term.
Importing maize attracts a basic duty of 60%, hence, reducing import duties may help in bringing down prices, the Reuters report said.
In terms of oil, India imports almost 3/4th of its requirement. A cut in taxes by the central government could push pump operators to pass on the benefits to retail consumers and help bring down inflation.
Even though global crude oil prices have eased and stabilised in recent months, fuel companies have not passed on the lower import costs to consumers or companies trying to make up for previous losses.
“We have some recommendations from them (central bank) which is a usual practice,” a second source quoted by Reuters said.
“This has been one of the ways in which government and RBI has coordinated to create a stable macroeconomic environment. Fuel and maize are part of duties. We will probably wait for at least one more print before we decide on these,” he added.
Measures adopted in past
This is not the first time that the Centre is considering slashing excise duties/ taxes to tame the rising inflation.
Last year, when retail inflation scaled to an eight-year high of 7.8% in April and the wholesale inflation crossed 15% in wake of the Russia-Ukraine war, RBI moved in to hike repo rate in an off-cycle meet. Since then, the central bank has constantly hiked key lending rates in a bid to curb the rising prices.
In addition, the government slashed excise duty on petrol by Rs 8 per litre and on diesel by Rs 6 a litre when the global crude oil prices were soaring to record highs.
The government had also reduced import duty on some key raw materials and inputs for the steel and plastic industry to reduce the cost pressures being felt as a result of geopolitical crisis.
It had also set a limit of 100 lakh tonnes on sugar exports to ensure adequate stocks. From June 1, 2022, only 10 million tonnes sugar export is permitted. The curbs have been extended till October 2023.
Further, the government had also slapped a ban on wheat exports to maintain food security and cool prices.
(With inputs from agencies)
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