Duty cuts to cost around Rs 4K cr, fiscal deficit may go up

NEW DELHI: The government's recent decision to cut duties on food commodities to combat price rise will cost the exchequer up to Rs 4,000 crore and will have some implication on fiscal deficit that is projected at 2.5 per cent of GDP for the current fiscal, sources said.

"The duty cuts which are aimed at taming the inflation rate are likely to result in a revenue loss of Rs 3,000 crore to Rs 4,000 crore," said a source in the Finance Ministry, adding the Ministry was further "open to review" duties on other items to bring inflation to "tolerable limits."

The inflation rate touched the highest mark in 13 months at 6.68 per cent for the week ended March 15.

The government is worried that the rise in prices of essential commodities by 10-15 per cent in the retail market could become a major issue in the coming assembly elections in Karnataka and later in other states.

Official sources said fiscal deficit target of 2.5 per cent, estimated at Rs 133,287 crore for the current fiscal, may have to be revised upward besides deferring the target of abolishing revenue deficit next year as the Ministry is under tremendous pressure to abolish 5 per cent customs duty on crude oil and steel to dampen the rising prices.

Meanwhile, Petroleum Minister Murli Deroa has asked Prime Minister Manmohan Singh to cut customs duty on crude oil to avert financial bankruptcy of public sector oil companies. Deora had an SOS meeting with PM yesterday evening to seek his intervention in protecting the state-run fuel retailers.

"Just like the Government scrapped import duty on edible crude oil (in the meeting of Cabinet Committee on Prices on April 1), 5 per cent customs duty on petroleum crude oil should also be made nil," Deora told reporters here.