Indian government bonds fell sharply after the government cut fuel excise duty, unsettling investors about the fiscal outlook. The move arrived as war-related oil price surges boosted inflation fears, while a heavy schedule of new debt issuance increased supply pressure. Together, these factors pushed the benchmark 2035 bond yield to its highest level since July 2024.
The government’s decision to cut excise duty on petrol and diesel has sparked expectations that windfall taxes on fuel exports will plug the revenue gap. But the simple arithmetic doesn’t back that optimism. With crude-price volatility still in play, the balancing act may fall short if costs rise faster than export-related gains.
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