"It is going to be very tough for the government to balance the necessary support to the bottom of the pyramid – people who are suffering on account of inflation – and at the same time ensure that there is enough money to invest in the creation of capital assets. So it is going to be tough and I do not think we will really be able to see the kind of growth that we saw, even pre-pandemic," says Mythili Bhusnurmath, Consulting Editor, ET Now
Do you think the impact of the gold import duty and fuel export tax is going to be enough to at least arrest the fall of the Indian currency? The mission seems to be that, isn’t it?
Well I do think the mission is quite that. Of course, that will perhaps be one of the effects, especially as far as the gold import duty is concerned. But as far as the oil export duty is concerned, I think it is to ensure that there is enough availability of oil domestically.
There are some states where you have more private marketing companies and in these retail outlets, their supplies had virtually dried up because they were having to sell at a loss. So as far as the export tax on petroleum and diesel are concerned, it is more to ensure that there is enough supply domestically. That was the main consideration.
As far as tax on windfall profits is concerned, these are the companies, especially refiners, who are making huge profits and so naturally the government thinks in terms of taxing them partly because it is a windfall profit and all governments like to tax windfall profits.
Also the government’s revenues are under extreme stress. So as a combination of all these things, the government thinks why not kill two birds with one stone and I think that really is the rationale as far as petrol is concerned.
As far as gold import is concerned, it is partly to arrest the pressure on the rupee but the main consideration is on the current account deficit, particularly as in all countries, particularly in India when inflation rises, people automatically turn to gold as a safe haven. We have seen that in the past and that is what is happening now also. As inflation is rising,people are turning to gold despite efforts to wean people away from physical gold through sovereign gold bonds. People still want t ..
With the windfall gains getting taxed and the way the government is approaching it, how do you think the growth momentum is going to be maintained in times to come?
It is going to be a very tall task. Growth momentum all over the world will be impacted and the easy money policies that central banks have followed in the past have now come back to haunt them and as a result, rising inflation has itself become an impediment to growth. This is going to be a serious problem for the government and not only for our government. In fact, India has done relatively better because our base is so low and we are a poor country. So growth of 6% to 7% perhaps should be exp ..
Unless there is capital expenditure, unless investment is taking place, we are not going to see growth picking up. It is going to be very tough for the government to balance the necessary support to the bottom of the pyramid – people who are suffering on account of inflation – and at the same time ensure that there is enough money to invest in the creation of capital assets.
So it is going to be tough and I do not think we will really be able to see the kind of growth that we saw, even pre-pandemic. It had been slowing down and this is going to make things additionally difficult for the government especially as revenues are under pressure.
Are these kinds of moves sustainable or will we land ourselves in trouble?
The government also has a very tough job. It is basically tight rope walking.These are windfall profits precisely because oil price is so high and the rupee is depreciating. A combination of both means these oil refiners are able to import cheaper Russian oil thanks to the discounts and then refine them and export that. So these are measures depending on the situation as it exists today. Tomorrow if oil prices fall, there won’t be any windfall profit ..
Source Name:-Economic Times