Faced with its worst economic crisis in decades prompted by the corona outbreak, India’s GDP growth is likely to shrink by 5% in FY 2020-21, according to Goldman Sachs. That will lower tax collection, and cap the government’s ability to spend and support growth.
Many governments’ economic policy responses have been rapid and extensive. The fiscal packages so far have aimed at cushioning the immediate impact of the sudden drop in economic activity on firms and households, and to preserve countries’ productive capacity. While there are large variations in the size of fiscal packages, most are significant, and some countries have taken unprecedented action. However fiscal packages at the time of dwindling tax revenues nevertheless pose significant administrative challenges.
Falling crude oil prices as a result of global slowdown has been a blessing in disguise for India. The government has tried to address the shortfall of taxes by increasing the duty on fuel products. Further state governments have hiked duty on liquor products. However, any measure to increase tax revenue might have only a limited benefit and may prove to be counterproductive in an already slowing economy.
As when the Global Oil Production is at the cheapest rate, Indian Government raised the price of diesel and petrol. The Supply-side inflation, Structural Inflation of raised Oil prices raises the Input Cost of all the transport of basic amenities as transport is mainly via diesel using Vehicles.
