Cut petrol, diesel taxes to ease inflation, RBI’s monetary policy panel tells Modi govt, states

New Delhi: Flagging upside pressure to inflation, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) Friday called for a reduction in taxes and duties imposed on petrol and diesel by central and state governments.

The statement comes at a time when prices of petrol in some states have crossed Rs 100 per litre due to a rise in international crude prices coupled with high taxes imposed by the central and state governments. Taxes currently constitute 58 per cent of the retail selling price of petrol and around 52 per cent of the retail selling price of diesel.

“The rising trajectory of international commodity prices, especially of crude, together with logistics costs, pose upside risks to the inflation outlook. Excise duties, cess and taxes imposed by the Centre and States need to be adjusted in a coordinated manner to contain



input cost pressures emanating from petrol and diesel prices,” the MPC said.

While the Modi government levies excise duty and cess on fuel, states levy value added tax (VAT). Both sides have been reluctant to slash rates even amid rising international prices as these taxes are a major source of revenue.

While keeping key policy rates unchanged, the MPC has forecast that the full-year inflation will be at 5.1 per cent.

Replying to a query on fuel prices and their inflation impact, RBI Governor Shaktikanta Das said at a press conference there is a need for coordinated action. “It is for the Centre and the states to take whatever decision. They also have their own constraints with regard to financing of their fiscal deficit. I am sure the government is also monitoring and keeping a watch on the inflation scenario,” he said