Keep existing fuel taxes, increase direct support to needy: IMF India’s ex-chief

Maintain the existing taxes on fuel and at the same time increase direct support to low-income households -- that's the advice to the government from the former chief of IMF in India.
Alfred Schipke, director, IMF-STI Regional Training Institute and former IMF India Mission chief, who led the 2021 assessment of India’s macroeconomic situation by the multilateral agency, told TOI that reducing fuel taxes in general disproportionately benefits higher-income households.

Fuel taxes by the central and state governments became an important source of revenue for the government during the pandemic, Schipke said, and helped provide support to vulnerable households and increase spending in healthcare.

"Our recommendation is to maintain the existing taxes on fuel, while at the same time increase direct support to low-income households. Reducing fuel taxes in general disproportionately benefits higher-income households, making such policies highly regressive," he said.

On India's economic recovery post the pandemic shutdowns, Schipke told TOI that the recovery in investment and consumption was expected to continue as reflected in the momentum of high frequency indicators.

Speaking on inflation worries, he said, "Despite recent moderation, inflation pressures persist, including sticky core inflation and pandemic-related supply disruptions. Given the negative output gap, an accommodative monetary stance, coupled with adequate systemic liquidity through various instruments, while closely monitoring elevated inflation pressures as conveyed, remains appropriate."

He said inflationary pressures need to be closely monitored, given strengthening demand, rising commodity prices and higher inputs prices.