“Certainly, the duty cuts will have a negative impact on fiscal deficit,” Ahluwalia said, adding in a rising global oil price scenario,increasing the retail price was inevitable. The Budget had pegged fiscal deficit for this fiscal at 4.6 percent, down from 5.1 percent in FY11.
After months of dithering, the government last Friday increased diesel price by Rs 3 a litre, cooking gas by Rs 50 a cylinder and kerosene by Rs 2 per litre. But to soften the impact of these price hikes on the common man, it has also re-jigged the duty structure.
While the government abolished the 5 per cent customs or import duty on crude and slashed the same on diesel and petrol to 2.5 percent from 7.5 per cent, it also reduced excise duty on oil products from 7.5 to 2.5 percent, incurring a revenue loss of Rs 49,000 crore this fiscal.
The reduction in excise duty on diesel would lead to a revenue loss of Rs 23,000 crore this fiscal, while the customs duty cut will see a loss of another Rs 26,000 crore. The price hikes would help oil companies limit their revenue loss by Rs 21,000 crore, but still would end the fiscal with about Rs 1,20,000 crore of revenue loss.
Keeping the oil prices low in an artificial manner would have weakened the economy and the oil sector. Hikes will have a temporary effect on inflation as it will wear off in three-four months. If the government had delayed the hike, it could have had an impact on fiscal deficit, which in turn would have impacted inflation, he explained.
