The government is depending heavily on taxes levied on petrol and diesel to finance its biggest ever Rs 20 lakh crore economic package announcement by Prime Minister Narendra Modi in May to revive the economy hit hard by Covid-19 pandemic.
Sensing the enormity of the situation and the need for a larger economic package, the government on May 5 had raised excise duty on petrol and diesel by an unprecedented level of Rs 10 and Rs 13 per litre, respectively. This itself will provide additional revenue of about Rs 1,75,000 crore in FY21, enough to support the actual fiscal impact of stimulus measures.
While the government has announced a Rs 20 lakh package, a large portion of the measures are liquidity boosting exercise through offer of credit and other financing mechanisms while the actual fiscal impact, as per analysts and research entities, is only to the tune of Rs 1.8-2 lakh crore.
This additional burden of central budget is largely getting absorbed by the additional revenue that the government is getting through taxes on petroleum. With more room available to further raise excise duty on petrol and diesel, the Centre could further reduce fiscal burden on itself that has got elevated due to the Covid pandemic, analysts said asking not to be named.
As per the parliamentary approval taken earlier, the government can further raise duty on petrol and diesel by Rs 3-6 per litre, thereby raising another Rs 50,000-60,000 crore. So the total earnings for the Centre from petroleum products itself could top Rs 2,25,000 crore in additional revenue besides over Rs 2,15,000 that it already gets in a year as excise revenue from the petroleum sector.
With the government's Rs 20 lakh crore stimulus package, the country's fiscal deficit is likely to be more than double to 7.9 per cent in the current financial year, according to an SBI research report. The report had earlier estimated the fiscal deficit to be 3.5 per cent of GDP this fiscal.
For the current fiscal, government's borrowings target has already been raised by over 50 per cent as additional expenditure and funding need to stimulate the economy hit by the Covid-19 pandemic.
Accordingly, the estimated gross market borrowing in the financial year 2020-21 has now been set at Rs 12 lakh crore in place of Rs 7.80 lakh crore as per the budget estimate for the current year. Borrowings can increase if the Centre captures additional debt mobilisation for states towards their GST compensation shortfall.
