New Delhi, May 23: The Centre’s decision to cut excise duty on petrol and diesel will put pressure on the fiscal deficit which has been estimated at 6.4 per cent of GDP for the current financial year, experts said.
The government on Saturday cut excise duty on petrol by a record Rs 8 per litre and that on diesel by Rs 6 to give relief to consumers reeling under high fuel prices that have also pushed inflation to a multi-year high.
The tax reduction on petrol and diesel will lead to revenue loss of around Rs 1 lakh crore per year for the government.
In addition to the fertiliser subsidy of Rs 1.05 lakh crore in the Budget (for current fiscal), the government provided an amount of Rs 1.10 lakh crore to further cushion farmers from the price increase due to the shortage of fertilisers.
While this, along with the lower-than-budgeted transfer of the RBI’s surplus and the need for additional spending on food and fertiliser subsidies, will impart upside risks to the fiscal deficit, a large part of this would be offset by higher taxes on account of a low growth embedded in the FY’23 Budget Estimate (BE) for taxes and the low nominal GDP growth assumption, ICRA said in a report.
“We expect the fiscal deficit to rise mildly to 6.5 per cent of GDP in FY2023, as against the BE of 6.4 per cent,” it said.
In her Budget speech on February 1, Finance Minister Nirmala Sitharaman had said the fiscal deficit in 2022-23 is estimated at 6.4 per cent of GDP, which is consistent with the broad path of fiscal consolidation announced by her last year to reach a fiscal deficit level below 4.5 per cent by 2025-26.