According to Reuters’ sources, the Indian government may reduce taxes on items such as fuel and maize to address rising inflation, following recommendations from the Reserve Bank of India. A decision is expected after the release of February inflation data. In January, India’s annual consumer price inflation reached a three-month high of 6.52%, surpassing the RBI’s target limit of 6% for the first time since October 2022.
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taxes on fuel could also be reduced again
According to a high-ranking source with knowledge of the central bank and government’s position, as reported by Reuters, “Food inflation is likely to stay high, prices of milk, maize and soy oil are adding to inflation worries in the near term … The government is looking at cutting import duties on products like maize, which attract a 60 per cent basic duty, while taxes on fuel could also be reduced again.”
Despite the recent stabilization and decrease of global crude oil prices, fuel companies in India have not reduced prices for consumers accordingly. Since India imports over two-thirds of its oil needs, if the government lowers taxes, oil marketing companies could pass on these savings to retail consumers, potentially lowering inflation.
Fuel and maize are part of duties
A second source of Reuters said, “We have some recommendations from them (central bank) which is a usual practice. This has been one of the ways in which government and RBI has coordinated to create a stable macroeconomic environment. Fuel and maize are part of duties. We will probably wait for at least one more print before we decide on these.,”
While there has been a surge in demands for another rate hike in response to the Reserve Bank of India’s hawkish monetary policy tone and the recent CPI shock, this perspective is not universally held.