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India is cutting fuel taxes before the holidays to stimulate the economy

A worker cleans a gas pump at a gas station in Ahmedabad, India, May 14, 2018. REUTERS / Amit Dave

NEW DELHI, Nov. 3 (Reuters) – The Indian government cut taxes on gasoline and diesel on Wednesday to boost consumer sentiment as Asia’s third largest economy recovers from shocks from heavy lockdowns to control the spread of the coronavirus.

The excise tax on gasoline has been cut by 5 rupees ($ 0.0671) per liter and that on diesel by 10 rupees ($ 0.1342) per liter, the government said in a statement.

The tax break comes on the eve of the Hindu festival of Diwali, which marks the start of a busy Christmas season in India, typically characterized by increased consumer spending.

The federal government faces a revenue loss of between 550 billion rupees ($ 7.38 billion) and 600 billion rupees from the tax cut, a government source told Reuters and declined to be named as the detail is not public.

Consumer spending in India has risen steadily over the past few months, with restrictions on travel and business activities being eased due to a decline in the number of coronavirus cases.

But high fuel prices have cut margins for businesses and farmers, who are a significant contributor to the economy. The reduction in fuel taxes should give manufacturers and farmers a boost.

“In view of rising inflation expectations, the tax component had to be reconsidered,” said NR Bhanumurthy, economist and vice chancellor of the BR Ambedkar School of Economics, based in Bengaluru. “This will cool inflation expectations somewhat, which will be a good omen for sustained GDP (gross domestic product) growth.”

India, the third largest oil importer and consumer in the world, supplies about 85% of its oil needs from overseas.

Global oil price hikes pushed gasoline and diesel retail prices to record highs in India this month.

Global oil prices soared to $ 86.40 a barrel on October 26 – its highest level since October 2014 – which was hit by the impact of the COVID-19 pandemic on economies, although it has since climbed to around $ 82.5 a barrel Barrels have fallen.

Taxes are an important part of fuel prices in India: a liter of gasoline costs 110.04 rupees, while diesel costs 98.42 rupees in Delhi. Before the price cut announced on Wednesday, taxes made up around 52% of the gasoline price and around 47% of the diesel price. ($ 1 = 74.5400 Indian rupees)

($ 1 = 74.5240 Indian Rupees)

Writing by Zeba Siddiqui in NEW DELHI; Editing by Alex Richardson and Giles Elgood

Our Standards: The Thomson Reuters Trust Principles.

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