The Union Government has room to cut the cess levies on Petrol and Diesel by Rs 4.5 per litre without losing revenues, to ease inflationary pressures, rating agency ICRA said on Friday. ICRA said that the record retail fuel prices are ‘weighing upon disposable incomes and consumption and feeding into inflationary pressures. Retail inflation had crossed the Central bank’s comfort zone at 6.3 percent in May.

The revenue loss entailed by the rate cuts would be offset by the rise in fuel consumption  expected over 2021-22 making this a revenue-neutral measure, the agency’s chief economist Aditi Nayar pointed out. “Benefitting from the anticipated rise in mobility and economic recovery aided by an acceleration of vaccine coverage, ICRA has forecast the YoY growth in the consumption of petrol and HSD (high-speed diesel) at  about 14 percent and 10 percent, respectively. Our forecasts suggest that consumption this year will be 6.7 percent higher for petrol and 3.3 percent lower for HSD,” she said.

Aggregate revenue from fuel taxes is expected to rise by around 13 percent to Rs 3.6 lakh crore this year, with additional revenue of Rs 40,000 crore. Foregoing the Rs 40,000 crore can support a reduction of Rs 4.5 per litre, ICRA estimated in a note.
 

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