With petrol at Rs 90 a litre and the Opposition baying for blood, pressure is mounting on the government to cut excise duty on fuel. Excise accounts for almost 50 per cent of fuel price but the government has virtually no scope for manoeuvre.
The chances of missing the fiscal deficit target of 3.3 per cent are growing and the first quarter target is already 70 per cent. Low tax collections and unmet divestment targets also add to the government's need to hold on to revenue from petro-products.
Compounding the problem are the depreciating rupee and rising crude oil prices (Brent Crude has touched $80 a barrel).
With some estimates suggesting that every rupee cut in taxes would make a Rs 30,000-crore dent to the exchequer, the government will now face the litmus test - can it hold its ground? Can the government prevent 'populism' and electoral concerns get the better of fiscal prudence?