Finance Minister Nirmala Sitharaman on Sunday said that two rate cuts within seven months would cost over ₹2 lakh crore to the Centre. She also emphasised that the present government has spent much more on development than the previous regime.
On Friday, the Centre announced an excise duty reduction of ₹8/litre on petrol and ₹6/litre on diesel from May 22. Central Excise Duty has four components Basic Excise Duty (BED), Special Additional Excise duty (SAED), Road & Infrastructure Cess (RIC) and Agriculture & Infrastructure Development Cess (AIDC). Basic ED is sharable with the state, while the other three are non-sharable.
Sitharaman said that the excise duty reduction has entirely been made in RIC. Even in November last year, the reduction of ₹5/litre in petrol and ₹10/litre in diesel was entirely made in RIC. Basic ED, which is sharable with states, has not been touched. Therefore, the entire burden of these two duty cuts (made in November 2021 and May 21, 2022) is borne by the Centre, she said.
“The duty reduction made yesterday (Saturday) has an implication of ₹1,00,000 cr a year for Centre. The duty reduction made in November’21 has an implication of ₹1,20,000 cr a year for Centre. Total revenue implication to Centre, on these two duty cuts is thus ₹2,20,000 cr a year,” she clarified.
Chidambaram’s tweets
Finance Minister’s tweets came after former Finance Minister P Chidambaram corrected his earlier tweets, posted on Saturday when he had said: “Raise ₹10 per litre in 2 months and cut ₹9.50 per litre on petrol and ₹7 per litre on diesel. This is equal to rob Peter more & pay Peter less! FM’s exhortation to States is meaningless. When she cuts Central Excise by one rupee,41 paise of that rupee belongs to the States It means that Centre has cut 59 paise and the States have cut 41 paise. So, dont point fingers The true cut will be if the Centre cuts from the cess it levies on petrol and diesel (which is not shared with the states).”
However, earlier in the day, after seeing the notification, he clarified: “Contrary to what I said yesterday, the entire burden of the reduction falls on the Centre. To that extent, I stand corrected. The states are getting very little by way of share of duties on Petrol and Diesel. Their revenue is from VAT on Petrol and Diesel, I wonder if they can afford to give up that revenue unless the Centre devolved more funds or gave them more grants. The situation is like being between ‘the devil and the deep sea.”
Without naming anyone in her tweets, Sitharaman said she is sharing some useful facts. “I am sure criticism/appraisal can benefit from having them before us,” she said.
Developmental expenditure
She also highlighted that RBI data shows total developmental expenditure incurred by the Govt during 2014 to 22 was ₹ 90.9 lakh crore. In contrast, only ₹49.2 lakh crore was spent on developmental expenditure from 2004 to 14. “The expenditure incurred by our Govt under @PMOIndia @narendramodi includes ₹24.85 lakh crore spent so far on food, fuel and fertiliser subsidies and ₹26.3 lakh crore on capital creation. Over the 10 years of UPA, only ₹13.9 lakh crore was spent on subsidies,” she said.