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Despite petrol prices scoring a century in metro cities on almost a regular basis, the Centre is not in favour of slashing taxes on fuel, Chief Economic Adviser Krishnamurthy Subramanian said on July 13. In an interview with Hindustan Times, Subramanian said that owing to its low weightage in the Consumer Price Index (CPI), a cut in the taxes on fuel is not likely to lead to a substantial impact on retail inflation. He also added that food inflation is a matter of much bigger concern as compared to fuel prices.

Subramanian said the weightage of petrol and diesel prices in CPI is under 3%, and on consideration of second-round effects, it comes to about 5%, while the weightage of food is close to 50%. On further analysis, it is evident that the contribution of fuel price towards inflation isn’t that big. He said one should consider data from all aspects before saying or doing anything when asked if the chances of a tax cut on fuel are zero.

Subramanian also said that the rise in crude oil prices is affecting the overall inflation. This month the price of a barrel of Brent crude reached nearly $78. Owing to an increase in prices by oil companies along with costlier transportation and communication services, fuel inflation shot up to 12.7%.

Retail inflation on the other hand dipped marginally in June to 6.26%, while exceeding the RBI’s upper limit for inflation target for the second month in a row, the CEA said. Food inflation marginally reached 5.15%, however, core inflation, which doesn’t include food and fuel eased 6.4% in May to 6.2% in June, he added.

No tax cut on fuel

Former Petroleum Minister Dharmendra Pradhan had said the prices of petrol and diesel remain high due to an increase in expenditure by the Govt on welfare schemes and the expenditure to combat Covid-19 pandemic. He also blamed the oil bonds issued by the UPA government for the high prices of fuel. However, Finance Minister Nirmala Sitharaman maintains that issues pertaining to taxes on petrol and diesel and its possible inclusion under the ambit of GST need to be properly discussed between the Centre and States. Hardeep Singh Puri, the newly appointed Petroleum Minister, asserts that his focus will be on ramping up domestic production of crude oil and natural gas.

Double digit growth expected

According to Subramanian, retail inflation rate is likely to be impacted by the restrictions which were imposed to control the spread of Covid-19, but core inflation has fallen in June and the sequential momentum of retail inflation has also toned down. Subramanian sees the possibility of double-digit growth in the current fiscal. He said that there is a good chance that India might still get the growth that was projected by the Finance Ministry (10.5%) and Economic Survey (11%). The impact of the second wave will be evident, but it won’t be much, he added.