Mumbai. With the prices of vehicle fuels petrol and diesel continuously reaching new highs, people are having to reduce their expenditure on non-discretionary expenses such as grocery, health and other facilities. Economists of the country’s largest lender State Bank of India (SBI) have said this.
The note written by Soumya Kanti Ghosh, chief economic advisor to SBI Group, said the government should cut taxes on fuel. Petrol has crossed Rs 100 per liter in most metros of the country.
The price of diesel has also reached close to a century. However, in some parts of the country, diesel has crossed the Rs 100 mark. According to an estimate, Rs 40 per liter of fuel goes to the Center and the states as tax.
Ghosh said that now that consumers have to spend more on fuel, they are reducing the expenditure on health. “Analysis of spending on SBI cards shows that non-discretionary health spending cuts are taking place to meet the increase in fuel spending.”
He said that the expenditure on other non-discretionary goods such as groceries and various utility services has come down. There is a significant reduction in the demand for these products. Ghosh cautioned that the high expenditure on fuel is having an impact on inflation. Inflation has remained above the Reserve Bank’s satisfactory level for the second consecutive month in June. He said a 10 per cent increase in fuel prices leads to a half per cent increase in the core consumer price index based inflation.
The note said there is an urgent need to cut fuel prices by harmonizing taxes. Otherwise, consumer spending on non-discretionary products is building up. Meanwhile, Ghosh said the headline inflation in May has been 6.30 per cent as estimated by the Central Statistics Office data. At that time there was a local level lockdown in various parts of the country due to the pandemic. As such, this figure appears ‘unusual’. (agency)