India Raises Levies on Fuel as Deficit Set to Breach Target

(Bloomberg) -- India increased a special tax on gasoline and diesel as pressure builds on Prime Minister Narendra Modi's government to bridge a ballooning budget deficit.

Additional levies on gasoline were raised by 10 rupees ($0.13) a liter effective Wednesday and that on diesel by 13 rupees, according to government statements. Pump prices will, however, not change, the government said.

That means fuel retailers would have to absorb the higher duties. The administration will be able to raise about $21 billion -- equivalent to the government's initial stimulus spending -- with the new levies, according to Vikas Halan, a senior vice president at Moody's Investors Service.

Hindustan Petroleum Corp., Bharat Petroleum Corp. and Indian Oil Corp. plunged on Wednesday after the late night move.

Before the latest increase, gasoline in Delhi cost about 70 rupees a liter, about half of which went to pay taxes. Brent crude is trading at about $31 a barrel.

Modi's administration has for years used lower global crude oil prices to raise domestic levies and cushion deteriorating finances at home. India's budget gap for the year ended March 31 touched 4.4% of gross domestic product, according to people with knowledge of the matter, breaching the 3.8% target and putting the nation at risk of a credit rating downgrade.

India will probably miss the deficit target for the current year, too, Reserve Bank of India Governor Shaktikanta Das said last week, while urging fiscal measures to combat the fallout of the coronavirus outbreak.

The government has cautioned against the demand for a big-bang stimulus. There's no free lunch, Chief Economic Adviser Krishnamurthy Subramanian said in an interview to the Economic Times newspaper.