RBI Governor bats for cut in State taxes on petrol, diesel

The central government had on May 21 cut excise duty on petrol by a record ₹8 per litre and that on diesel by ₹6 to give relief to consumers battered by high fuel prices

Lending support to the Union government’s pitch for States to reduce sales tax (VAT) on petrol and diesel, Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday said a cut in VAT on fuel will help soften inflationary pressures as well as expectations.

The central government had on May 21 cut excise duty on petrol by a record ₹8 per litre and that on diesel by ₹6 to give relief to consumers battered by high fuel prices that have also pushed inflation to an all-time high. At that time, it asked States to lower VAT to further provide relief. Almost no State reduced VAT.

Announcing the bi-monthly monetary policy, Mr. Das said a quick survey of urban households undertaken after the excise duty cuts on petrol and diesel on May 21 showed a significant moderation in their inflation expectations.

“In such a scenario, further reduction of State VATs on petrol and diesel across the country can certainly contribute to softening of the inflationary pressures as well as expectations,” Mr. Das said.

Finance Minister Nirmala Sitharaman, at the time of announcing a reduction in excise duty, had urged States to reduce VAT. Her other cabinet colleagues including Oil Minister Hardeep Singh Puri made similar pleas.

But hardly any State reduced VAT after the May 21 excise duty cut announcement.