After the second wave of covid-19 in April 2020 to the prices of fuel have increased at big levels and have caused a lot of the pockets general public. There is some relief but there will be a big deficit to the government.
On the eve of Diwali Central Government of India gave its people a gift by reducing the price of fuels. Petrol price was reduced by 5 rupees whereas diesel was reduced by 10 rupees square liter. But how much is going to cost the government we will be focusing on that particular aspect of this price cut.
When the government decided to reduce the excise duty they knew the consequences. This will cause the central government to rupee 45000 crores in the financial year 2021-22. In terms of fiscal deficits, India’s fiscal deficit for the FY2022 will go to 6.5 from 6.2.
This is the partial withdrawal of the move done by the central government in 2020 where the price of petrol was increased by 13 rupees per liter and diesel 16 rupees per liter. Japanese brokerage called “Nomura” has remarked this price cut. They said this price cut will cost India about 0.45% of the loss in GDP for FY2022.
The fiscal deficit which will go to 6.5 from 6.2 will still be in the limit of 6.8. the maximum fiscal deficit anticipated in FY2022 was 6.8. This price cut will still make sure that the deficit is not out of control.
Politically, high inflation is still a concern this move will be good but people will still be panic about the inflation around. The brokerage said this timing is still good for reducing the price and this will still help the economy because the consumption will be more. The economy will its growth of 9.2 percent real GDP in FY2022
Price cut will benefit the government by increasing consumption and benefit the general public as well. The history of fuel price has been only consistent towards increasing consistently.
The first-time government has pulled the chain and has reduced the price just enough to relieve the general public. This is still a good move and we can expect good support from the general public.
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