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Maharashtra announced rollback by 2% of the 5% Value Added Tax (VAT)  

LPG tax hike in Maharashtra rolled back by 2%

Press Trust Of India…Mumbai, March 30, 2012…First Published: 18:32 IST(29/3/2012) HINDUSTAN TIMES newspaper..

Under pressure from all quarters, including ruling coalition partner Congress and even from within his own NCP,

Maharashtra finance minister Ajit Pawar on Thursday announced a rollback by 2% of the 5% Value Added Tax (VAT)

he had proposed in Budget on LPG for domestic use."The tax would be now 3%, instead of 5%," Pawar informed

the state legislative council in Mumbai.

On Tuesday, Congress legislators led by state unit president

Manikrao Thakre had met chief minister Prithviraj Chavan and demanded withdrawal of the tax.Several NCP

legislators had also demanded a rollback saying the LPG hike will pinch the common man.The 5% tax would

have raised the cost of a domestic LPG cylinder by approximately Rs 20, and earned revenue to the tune of

Rs 200 to Rs 250 crore.Shiv Sena executive president Uddhav Thackeray, who met Chavan, had announced

that his party will hold a protest march if the tax hike is not done away with.

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Can India afford fully free oil prices?  

Can India afford fully free oil prices?

(Courtesy: The Economic Times, New Delhi, March 28, 2012)

Perhaps those recalcitrant allies of the Congress are right, but for the wrong reasons. The Trinamool Congress and the DMK, along with a few others, are fighting tooth and nail any move to deregulate diesel and LPG prices - all in the name of the aam aadmi. Which means the UPA is under tremendous political pressure from within not to decontrol oil prices, but much to its delight, an "economic justification" has just cropped up.

A study - which departs from the common-sense argument in favour of market-driven oil prices - suggests that the more decontrolled oil prices are, the lower will be growth, at least in the short run. A National Institute of Public Finance and Policy (NIPFP) paper, authored by NR Bhanumurthy, says, "Contrary to existing beliefs, passing on oil price hikes [to consumers] has an adverse impact on growth." Simply put, when we compare two scenarios- one of a 100% and other of a 50% decontrol of oil prices - when oil prices rise, GDP growth will be lower in the first case, at least in the short run.

The paper forecasts that even if overseas crude prices remain the same between 2012-13 and 2016-17 - a period when the Centre may gradually get rid of oil subsidies - average growth of the Indian economy may fall to 7.6% from 8.44% and average inflation accelerate by 0.7%. The study is based on the intuition that when the government decontrols oil prices, state expenditure on subsidies will fall and if there is no increase in any other component of expenditure, lower government demand will result in lower growth. Besides, higher inflation will contribute to lower real GDP growth.

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