The Centre on Monday ruled out an immediate reduction in excise duty on petrol and diesel but indicated that it could consider options of selling NRI bonds or deposit schemes to foreigners to stem the slide in the rupee.
Two senior Finance Ministry officials emphasised that the government is conscious, worried and vigilant about the falling value of rupee but is not alarmed, and said that markets need not panic about the depreciating rupee.
On Monday, while the rupee hit an all-time low of 72.67 against the dollar before closing the day at 72.45, petrol and diesel prices in Delhi also hit their all-time highs. Petrol price in Delhi hit Rs 80.73 per litre Monday while that of diesel touched Rs 72.83 a litre.
These comments from government officials came on a day when Opposition parties held nationwide protests against the surge in fuel prices. As calls for a cut in taxes imposed by the Centre and States grew louder, in an informal media briefing, a senior government official said that the cut in excise duty will impact fiscal math and dent revenues. “I do not blame the states, even their fiscal situation is precarious. Even states like Bihar, Kerala and Punjab are not in a position to cut state levies on petrol/diesel,” the official said.
Another official raised concerns over implementation of development projects if the Centre and states reduce taxes. “A cut in oil taxes will add to the fiscal deficit. National fiscal deficit determines bond yield and with a higher fiscal deficit the rupee becomes shaky. Then (if there is a cut in taxes) you have to make budget cuts in development expenditure. This is the real consequence of oil tax cut,” he said, adding that states “do not have the capacity” to reduce tax rates.
The government is also looking at all options to curb the widening current account deficit. “The RBI (Reserve Bank of India) is intervening as and when required. The government is looking at ways to reduce current account deficit. We are considering several options which could include overseas borrowing like NRI bonds or deposit scheme for foreigners. Markets need not panic about depreciating rupee. There is a wrong impression in the market that government not worried about depreciating rupee. The government is vigilant on rupee fall,” another official said.