The New Budget for FY22 expertly empowers state governments to freshly impose extra cess on diesel and petrol. This has been done to give impetus to the agriculture sector. Agriculture infrastructural development cess to the value of ₹2.50 on petrol and ₹4.00 on diesel has been proposed in the financial year of 2021–22.
This step has been described by the Congress party as a vengeful act against thousands of farmers who took out a tractor rally on Republic Day. Whatever may be interpreted, the Union government does not want to do away with its straight increase in revenues.
Confronted with plunging revenues during the past critical months of the coronavirus pandemic, the Central government had even used the collapse in global crude oil prices to raise excise duty on fuel, caring little about the rising oil prices feeding into already-elevated inflation.
Hereafter, the government sternly dealt with a domestic trade-off (where one thing increases and another must decrease) between fiscal stability (a condition in which the three components of the financial system — financial institutions, financial markets and financial infrastructure — are stable) and sticky inflation (as fiscal experts say it is an undesirable economic situation where there is a combination of stubbornly high inflation and often stagnant growth). It is often associated with cost-push factors, i.e. factors that cause a rise in the inflation rate but also lead to lower spending and economic development.
Though the finance minister has made it clear the fresh dose of agri-cess will not influence common people, ardent safeguard has been taken by bringing a reduction in basic excise duty and special additional excise duty. Despite this arrangement, one math tells that the chance of a hike in the inflationary trend does not wholly die down by some basis points, given the current level of inflation and size of the fiscal deficit.
An earlier example says that a $10 per barrel increase in the price of crude oil implies a ₹5.8 per litre increase in the retail prices of petrol or diesel. This adds mainly 34 basis points to the headline inflation over 3 to 6 months if the government doesn’t reduce taxes on the petroleum stocks.
However, the cut in petrol and diesel taxes to counteract the rise in crude oil prices brings a heavy loss of revenue, which will impact the Gross Domestic Product. It cannot be left out straight. In the latest post-budget survey, it has been said that about 70% of people will have to face inflationary trends in days to come.
So, people have thrown the proposals out and don’t think that it could change the inflationary scenario in the market, where the risk of business run continually. Neither of the measures has seriously brought up to minimise inflation, and so, we are still coping with the close continuation of the price surge nonetheless.
The items that are going to be costlier are mobile phones, chargers, power banks, imported raw silk, solar inverters, leather items, imported gemstones, tunnel boring machines, Kabuli chana, pulses, urea and imported auto parts. Whereas, the items that are going to be cheaper are iron, steel, nylon clothes, copper items, leather goods, gold and silver, insurance, shoes and agricultural equipment.