Recent tax cut on fuels significantly positive for inflation management: Shaktikanta Das

11 Nov 2021 Evaluate

Reserve Bank of India (RBI) Governor Shaktikanta Das has ruled out upside risks to the 5.3 per cent inflation forecast for the current fiscal, and said that the recent cut in excise duty on diesel and petrol as well as better management of supply-side issues on the food front have contained inflationary expectations. He added that these measures are significantly positive for inflation management. Das said ‘the excise duty cut on petrol and diesel is positive for inflation. In fact, it is significantly positive for inflation (management)’. He noted that inflation has for long been a supply-side issue, and fortunately, that has been managed well this time, helping food inflation to be brought under control. However, the governor warned that core inflation still remains elevated and needs to be addressed.

The Governor said ‘Traditionally our inflation has been mainly caused by supply-side factors, but fortunately that has been addressed by the government.’ He also said ‘Food inflation started off first with edible oils, then moved onto pulses and then fuel inflation added to it. But having addressed the supply side issues well, we should be able to meet our forecast, made pre-excise duty cut, of 5.3 per cent of the year ending March.’ He added ‘All these measures have contributed to bring down retail inflation and augur well for its management’. So, he pointed out that food inflation by and large looks to be now under control.

On inflation expectations, Das said ‘So far as we are concerned, our expectation is that it will be in line with our projection of 5.3 per cent for the full fiscal, and the petrol and diesel price cut was not priced in this forecast’. He said ‘Now, it looks this is very positive for inflation management’, and added ‘So, we are sticking to our last projection’. Further, the RBI chief cautioned about high core inflation. He said ‘as far as we are concerned, core inflation has always remained elevated, and that is a policy challenge, and we are keeping a very close watch of the evolution of core inflation.’ Globally, he said the inflation outlook is grim given the rising energy and steeply rising prices of commodities like crude and steel. He added ‘Though some of them have already peaked, we have to be very careful’.

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