In a commentary earlier this week (Why no tax relief on oil imports is Modi’s smart move), we had argued that the government should not, despite bad headlines on oil prices, cut the Centre’s fuel taxes, and ask instead state governments to reduce their ad valorem taxes on petrol and diesel. Just an hour back, Finance Minister Arun Jaitley announced that while the Centre will advice states to cut their ad valorem taxes to the effect of Rs 2.50, it will also be effect a Rs 1.50 cut in Central taxes and ask oil marketing companies (OMCs) to absorb another Rs 1 cut. The cumulative impact, if states follow through, will be Rs 5 cut in retail prices.
How is this as a policy response: the government has mixed the good (and missed another good option), the bad and the potentially ugly in politically responding to the global crude price surge. Read More