Anil Singhvi explains how lower crude oil taxes can help RBI pause rates

Crude oil prices hit a 15-month low on Wednesday as they slid below $71.

The prices recovered today a bit, but they are still well below $75.

Zee Business managing editor Anil Singhvi says the central government can use the slashed prices as a golden opportunity to control inflation by cutting the excise duty on crude oil.

He says it will give leeway to Reserve Bank Governor Shaktikanta Das to put brakes on the repo rate in the monetary policy meeting next month.

"If the government reduces the duty on crude oil, our inflation can be controlled. It is still above 6 per cent, but if the excise duty is cut on crude oil, inflation can go under 5 per cent." 

Eleborating his views, Singvi said, "Since crude oil is getting cheaper, petrol and diesel prices are bound to slash in India soon. It's a golden chance for the government and the RBI governor. Reduced duty will tame inflation as petrol and diesel rates go down."

He added, "It will give a chance to the RBI governor to keep the interest rate under control in the next MPC meeting."     

The central excise on crude oil per metric ton is around Rs 4500.

While India's inflation rate is 6.44 per cent, its repo rate is 6.50 per cent.

The next monetary policy meeting of the RBI is scheduled for April 3, 5, and 6.

The last rapo rate hike came in February, when the RBI governor increased the rapo rate by 25 points to 6.50%.

It was the sixth jump in the rate since May 2022, when it was 4.40 per cent.

In February, the RBI also lowered its consumer inflation projection for the year ending March 2023 from 6.7 per cent to 6.5 per cent, assuming crude oil to average $95 a barrel, and for the quarter ending March 2023 from 5.9 percent to 5.7 percent. 

Since the price of crude oil has reached more than $20 below the RBI's assumption mark of $95 in February, the Reserve Bank can find itself in quite a comfortable position during the next MPC meeting.

Along with it, if the government decreases the excise duty on crude oil, the RBI will be in a position to loosen its stance on the repo rate.

The RBI's inflation projection for April–June 2023 is 5 per cent.