After US electing a “leftist” Biden to occupy the White House; Germany elected social democrat Olaf Scholz to the office of Chancellor, France reelected left of center Emmanuel Macron (first reelection of a president since 2002); Italy reelected Christian leftist Sergio Mattarella; and now Australia has elected a leftist Anthony Albanese as the prime minister. The ruling right of the center New Democracy party in Greece has been consistently losing support in opinion polls for the elections scheduled to be held in October later this year.
A number of Latin American countries like Chile, Mexico, Argentina, Bolivia, Peru, and Honduras have elected leftist leaders to lead their respective countries. The opinion polls are indicating that Columbia and Brazil are also most likely to elect leftist leaders in the elections to be held in May and October respectively. In Asia, the Chinese communist regime under President Xi Jinping has strengthened its position.
Moreover, to counter the egalitarian agenda of left of center parties, even the right of center parties like conservatives in UK, BJP in India, LDP in Japan and Yemina in Israel are increasingly resorting to socialist agenda to retain power.
The emerging trends clearly indicate that the rising income and wealth inequalities are driving the political narratives globally. Obviously, this narrative will gain further momentum as the monetary corridor tightens further and fiscal constraints begin more pronounced.
The recent cuts in excise duty on transportation fuel announced by the government of India must be viewed from this angle also.
Over the weekend, the finance minister announced a cut of excise duty on petrol (Rs8/ltr ) and diesel (Rs6/ltr) to cool down the inflation and provide relief to the stressed consumers. The finance minister stated that this cut will have a Rs one trillion impact on the central government budget. She also mentioned that the entire Rs one trillion will be met through reduction in Road and Infrastructure Cess (a part of Central excise on transportation fuel). It is pertinent to mention that the cut of Rs5/ltr in petrol and Rs10/ltr in diesel made in November 2021 was also met entirely through reduction in RIC. The November 2021 cut had an infra budget implication of rs1.2trn.
The union government has levied a Road Cess on sale of petrol and diesel in the union budget for FY99 to create a dedicated fund for construction of roads. The fund was later adopted under a law named Central Road Fund (CRF) Act, 2000. In the Finance Act 2018, the cess was rechristened as The Road and Infrastructure Cess (RIC) as the scope of the fund was widened to include infrastructure.
The Road and Infrastructure Cess (RIC) is collected and levied on specified imported goods and on excisable goods as specified in the Sixth schedule of the said Act. The said goods are motor spirit commonly known as petrol and high-speed diesel oil. The objective of RIC is to provide dedicated funds for development and maintenance of National Highways, railway projects, improvement of safety in railways, State and rural roads and other infrastructure.
The reduction in RIC means almost 10% cut in Rs.11.06trn provided for capital expenditure in FY23BE. This is equal to 75% of the allocation made for NHAI in FY23BE.
Obviously, the immediate relief to the poor from inflation is a higher priority than growth. As things stand today, the tighter monetary and fiscal conditions will continue to challenge the growth ecosystem in near future. This implies that supply side challenges that are threatening the global economy may continue to persist till a new growth paradigm emerges. In the meantime, the economic policy will continue to be a constant struggle to avoid stagflation.
