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There is a need for a coordinated and calibrated reduction in indirect taxes on petrol and diesel by the Centre and States, according to Shaktikanta Das, Governor, Reserve Bank of India.
To a specific question on the impact of high price of petrol and diesel on inflation, Das said: “Diesel and petrol prices do have an impact on the cost side. They act as cost push factors across a range of activities.
“...High petrol and diesel prices do have an impact on cost of manufacturing and cost of transportation and other aspects.”
So, there is need for a coordinated action between the Centre and States because there are indirect taxes levied both by the Centre and States, the Governor said in his reply at the 185th Foundation Day of the Bombay Chamber of Commerce and Industry.
Revenue requirements
Das observed: “There is a need for coordinated and calibrated reduction in taxes. At the same time, we do realise that governments – both Central and State – have their revenue pressures, and they are required to spend higher sums of money to enable the country and the people to come out of the Covid stress.”
So, the revenue requirement and the compulsions of the government are fully understood, the Governor said.
“But having said that, the impact of inflation is also something that comes in from the fact that petrol and diesel prices do have an impact on the cost of manufacturing and on the cost of production.
“So, I am sure, going forward, both the Central and State governments will take positive decisions in a coordinated manner,” noted Das.
In his comments in the latest monetary policy committee meeting, the Governor underscored that CPI (retail) inflation, excluding food and fuel, remained elevated at 5.5 per cent in December due to the inflationary impact of rising crude oil prices and high indirect tax rates on petrol and diesel, and pick-up in inflation of key goods and services, particularly in transport and health categories.
Proactive supply-side measures, particularly in enabling a calibrated unwinding of high indirect taxes on petrol and diesel – in a co-ordinated manner by Centre and States – are critical to contain further build-up of cost-pressures in the economy, he added.
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