Indian Government Reduces Tax on Fuel, Key Commodities To Battle Inflation

India on Saturday announced a series of modifications to the tax system charged on vital commodities in an attempt to buffer customers from rising prices amid high inflation.

Finance Minister Nirmala Sitharaman announced a drop in excise duty on petrol by 8 rupees ($0.1028) per liter, and 6 rupees per liter on diesel.

The new tax policy on fuel and diesel could result in a loss of around 1 trillion Indian rupees to the government in annual revenue due to the decreased collection, she stated in a series of tweets.

The government also reduced the import duty on anthracite, PCI coal and coking coal in an attempt to cut raw material costs for local market demand.

The latest measures will be effective from May 22, the government stated in a notification after the announcement by Sitharaman, who also asked state governments to follow suit with comparable reductions on fuel costs keeping in line with federal plans.

A liter of petrol currently costs 105.41 rupees, while diesel is at 96.67 rupees in New Delhi.

The government would also pay a supplementary subsidy of 200 rupees per cooking gas cylinder to approximately 90 million people under a welfare scheme launched for women below the poverty line.

The subsidy will have an annual income implication of about 61 billion Indian rupees, Sitharaman said.

"Prime Minister Narendra Modi has expressly requested all arms of the government to work with sensitivity and give relief to the common man," she said.

The government was also attempting to minimize taxes on raw materials for plastic items to lower down the cost of final products.

Experts said the recent steps will likely increase fiscal problems and create uncertainties about the government attaining its deficit target of 6.4 percent of GDP for 2022-23.

But inflation has become a huge concern for Modi's government ahead of elections to many Indian state assemblies this year.

A substantial surge in inflation meant input costs rose for businesses.

The rise forced the central bank to hike interest rates during an unexpected policy meeting this month.

"Today's decisions, notably the one relating to a major drop in fuel and diesel prices, will positively impact many industries, offer relief to our folks," Modi wrote on Twitter (NYSE:TWTR) (NYSE:TWTR). "It is always people first for us!"