INR
The Centre’s reversal on windfall taxes within 18 days of announcing the moves led a Japanese brokerage to flag its impact on fiscal math. Nomura said the reversal makes it maintain the earlier projection for a 0.4% fiscal slippage over the budgetary target of 6.4% for FY23.
The Centre on Wednesday scrapped a three-week-old tax on the export of petrol and cut windfall taxes on overseas shipments of diesel and ATF as well as on domestically produced crude oil, which led to heavy gains on Reliance Industries and state-run ONGC counters.
While the INR 6 a litre export duty on petrol was scrapped, the tax on the export of diesel and jet fuel (ATF) was cut by INR 2 per litre each to INR 11 and INR 4, respectively. The tax on domestically produced crude was also cut to INR 17,000 per tonne from INR 23,250, which will benefit Vedanta and ONGC.
Nomura said the decisions will reduce the fiscal windfall, mentioning that earlier, it was expecting gains to the tune of 0.37% of GDP.
“We estimate that these tax cuts will reduce the total levy from fuel exports from INR 66,400 crore (0.24% of GDP) on an annualised basis to INR 21,100 crore (0.08% of GDP), while the reduced cess on domestic crude oil production is likely to reduce the annualised tax revenue by INR 18,500 crore (0.07% of GDP) to INR 50,500 crore (0.18% of GDP),” the brokerage said.
The brokerage said at the margin, the reduction in export duties on fuel should be positive for export growth, but it will await merchandise trade data for July-August to assess whether there was a material deterioration in oil exports due to the imposition of taxes.
It estimated the current account deficit to widen to 3.3% of GDP in FY23 from 1.2% in FY22.
While FDI (foreign direct investment) flows are likely to remain stable, they are unlikely to fully offset the weakness in FII (foreign institutional investors) flows, which should lead to a negative basic balance of payments, it said.
The finance ministry will tell ministries and departments not to expect additional funds in the revised estimates for revenue expenditure.
“Since then, sustained growth momentum has been observed in several High Frequency Indicators (HFIs), indicating that the projected growth path is on course in the first quarter of FY 2022-23,” minister of state for finance Pankaj Chaudhary said in a written reply to Rajya Sabha.