Government is Unlikely to Cut Fuel Taxes: CEA Subramanian

Chief Economic Adviser (CEA) Krishnamurthy Subramanian informed that the government would likely not cut fuel taxes, even after petrol and diesel rates are a record high. “When we look at it from the inflation perspective, what is the contribution of petrol and diesel to inflation is something we have to keep in mind. So we should speak based on data on all these aspects,” he said in an interview with Mint.

Subramanian said food inflation is a more significant concern. He said that reducing fuel taxes may not have a meaningful impact on retail inflation since the weightage in the index is low. “If you look at the last 6-7 years, anywhere between 35-60 per cent of addition to retail inflation comes from food inflation,” he said.

“Weightage of petrol and diesel in Consumer Price Index (CPI) is less than 3 per cent while weightage of food is about 50 per cent. Even if you think of the second-round effects of the fuel price hike, the weightage is about 5 per cent. So if you do an analysis, it becomes obvious that the contribution is not that large.”

Subramanian also said increasing crude oil prices are displaying in overall inflation. In June, CPI-based inflation rose 6.26 per cent, somewhat lower than 6.30 per cent in May. Food inflation rose to 5.15 per cent in June, while inflation in the ‘fuel and light’ sub-group rose to 12.7 per cent.

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