Photographer: DHIRAJ SINGH/Bloomberg

India Cuts Levy on Fuel to Ease Inflation After Oil Prices Surge

  • Measure to ease inflation and impact of global energy prices
  • Revenue loss of about $2 billion expected from the move

India cut a domestic levy on gasoline and diesel to slow inflation after oil entered a bull market last week.

The finance ministry said in a statement that the basic excise duty on gasoline and diesel will be cut by 2 rupees a liter from Wednesday. The government, which is battling a slowing economy, will lose about 130 billion rupees ($2 billion) in the year ending March 31 because of the measure, it said in the statement on Tuesday.

The reduction in taxes comes ahead of the Reserve Bank of India’s rate decision on Wednesday, in which the central bank is expected to hold its benchmark repurchase rate at 6 percent. Levies by the federal government on diesel have increased nearly five times to 17.33 rupees since September 2014, according to Indian Oil Corp. That combined with taxes by state administrations pushed prices of the fuel in New Delhi to levels seen three years ago, when crude oil prices were twice as high.

“This rise in the prices of petrol and diesel is also reflected in WPI inflation,” according to the statement. The measure has been taken to “cushion the impact of rising international prices of crude petroleum oil, and petrol and diesel” on retail prices and “to protect the interest of common man,” the finance ministry said.

Brent crude for December settlement dropped 6 cents to $56.06 a barrel on the London-based ICE Futures Europe exchange. The benchmark has risen 25 percent since the middle of June.

Wholesale prices accelerated 3.24 percent in August from a year earlier, the most since April, on higher food and fuel prices. Fuel, power and lighting prices had risen 10 percent, while the index for food articles rose by 5.75 percent and manufactured products 2.45 percent.

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