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Fuel excise duty cut ‘redit negative’ for India, fiscal deficit may slip to 3.4%: Moody’s

Wednesday, October 10, 2018

The excise duty cut on petrol and diesel is credit negative for India as it will reduce government revenue and increase fiscal deficit by 0.1% to 3.4% of GDP in the year ending March 2019, Moody's Investors Service said yesterday.

Also, the earning of public sector oil marketing companies (OMCs) would be "negatively affected" as they also absorbed Rs 1 per litre cut in their pricing, Moody's said.

The government on Friday cut excise duty on petrol and diesel by Rs 1.5 a litre, sacrificing Rs 10,500 crore revenue in the current financial year.

"Overall, excise duty cuts are credit negative because they will reduce government revenue collection and increase India's fiscal deficit," Moody's said in a statement.

The US-based rating agency said these measures create downside risks to the central government's fiscal deficit target of 3.3% of GDP for fiscal 2018.

"Because the government had already met 94.7% of the budgeted annual deficit by August 2018, to achieve its deficit target it will likely need to compress capital expenditure. Consequently, we expect the central government deficit target to slip modestly to 3.4% of GDP, while the combined general government deficit (central and state) should remain at about 6.3% of GDP," Moody's said.

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