Budget: CII seeks excise duty cut in petrol, diesel, hike in minimum wages
- It suggested an increase in the daily minimum wage under MGNREGS from ₹267 to ₹375 as suggested by the ‘Expert Committee on Fixing National Minimum Wage’ in 2017.
New Delhi: The Confederation of Indian Industry (CII) has suggested excise duty cuts in petrol and diesel and a hike in key minimum wages in the upcoming Union budget to boost consumption amid high inflation.
In a statement on Sunday, the industry body said it wants to see targeted interventions to boost consumption, especially at the lower income level, including an increase in the the daily minimum wage under the Mahatma Gandhi National Rural Employment Guarantee Scheme and raise in the annual payout under the PM-KISAN scheme.
“Domestic consumption has been critical to India’s growth story, but inflationary pressures have somewhat eroded the purchasing power of consumers. Government interventions could focus on enhancing disposable incomes and stimulating spending to sustain economic momentum. Persistent food inflationary pressures particularly impinge upon low-income rural households who allocate larger share to food in their consumption basket," said Chandrajit Banerjee, Director General, CII.
He further noted that while recent quarters have shown promising signs of recovery in rural consumption, targeted government interventions, such as increasing per unit benefit under its key schemes like MGNREGS, PM-KISAN and Pradhan Mantri Awas Yojana, and providing consumption vouchers to low-income households, can speed up the process.
Noting that reducing excise duty on fuel is crucial as fuel prices significantly drive inflation, forming a substantial portion of the overall household consumption basket, the CII statement said: "The central excise duty alone accounts for approximately 21% of the retail price for petrol and 18% for diesel."
Since May 2022, these duties have not been adjusted in line with the around 40% decrease in global crude prices, it said, adding that lowering excise duty on fuel would help reduce overall inflation and increase disposable incomes.
The selling price of petrol and diesel were last revised in March this year by the government-owned oil marketing companies, ahead of the general elections with cuts of around ₹2 per litre for both the fuels. The previous revision was in May 2022 in line with the excise duty cut amid high international crude oil prices due to the Russia-Ukraine war.
Further, highlighting high inflation and the eventual reduction in the buying power of lower- and middle-income earners, CII said that the budget should consider reducing the marginal tax rate for personal income up to ₹20 lakh per annum. This would help trigger the virtuous cycle of consumption, higher growth and higher tax revenue, it said.
It also suggested an increase in the daily minimum wage under MGNREGS from ₹267 to ₹375 as suggested by the ‘Expert Committee on Fixing National Minimum Wage’ in 2017. According to CII Research estimates, it would lead to an additional expenditure of ₹42,000 crore.
On the higher support to farmers, CII statement said: "Raise the annual payout under the PM-KISAN scheme from ₹6,000 to ₹8,000. Assuming 10 crore (100 million) beneficiaries, this will entail an additional expenditure of ₹20,000 crore."
For targeted approach towards people in the low-income group, CII has suggested the government to introduce consumption vouchers to stimulate demand for specified goods and services over a designated period.
The vouchers could be designed to be spent on designated items, specific goods and services and could be valid for a designated time period, to ensure spending. The beneficiary criteria can be defined as Jan Dhan account holders who are not beneficiaries of other welfare schemes, it said.
Highlighting the weakening trend in household savings, Banerjee said: “Low returns on bank deposits compared to other avenues such as equities and mutual funds, coupled with a higher tax burden on interest income, have made bank savings less attractive”.
Bank deposits as a proportion of household’s financial assets have declined from 56.4% in FY20 to 45.2% in FY24. To encourage bank deposit growth, CII, in its budget proposals for 2025-26, has suggested taxing interest income from deposits at a lower rate and reducing the lock-in period for fixed deposits with preferential tax treatment from five to three years.
The recommendations to boost purchasing power of people comes amid a prolonged inflationary pressure in the country amid a slow growth rate. The retail inflation, however ease in November amid hopes an early rate cut by the Reserve Bank of India. The Consumer Price Index (CPI) for the month of November 2024 eased to 5.48% as against 6.21% in October 2024. The retail inflation has fallen within the Reserve Bank of India's target range of 2-6%.
The department of economic affairs in its monthly economic review noted that there are good reasons to believe that the outlook for growth in H2 of FY25 is better than the first half. It also indicated that measures of the Reserve Bank of India to tame inflation have also contributed to the demand slowdown.
"The combination of monetary policy stance and macroprudential measures by the central bank may have contributed to the demand slowdown. It is good news that the central bank lowered the cash reserve ratio from 4.5% to 4% in its policy meeting in December 2024. That should help boost credit growth, which has slowed a little too much and quickly in FY25. Hiring and compensation practices in the corporate sector have also played their part in slowing urban consumption growth," it said.
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Business NewsEconomyBudget: CII seeks excise duty cut in petrol, diesel, hike in minimum wages
First Published:29 Dec 2024, 06:06 PM IST
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