Petrol pump
A sharp cut in petrol price can provide a booster dose to India's slowing economy.Reuters

With concerns over growth slowdown looming large after demonetisation, the Indian government should consider reducing petrol prices sharply as a fiscal stimulus measure to boost economy, according to analysts.

In an interview with CNBC TV18, Investment Director of Enam Holdings Sridhar Sivaram said petrol prices should be reduced by a sharp Rs 5 per litre to kick-start a slowing economy after banning the high-value currencies.

"I think the government needs to give a fiscal stimulus right now because this (demonetisation) is an unprecedented event and we know that the economy is slowing down. Petrol prices have to be drastically cut by Rs 5 to give a booster to the economy because we are seeing a shock and you need something to neutralise it," Sivaram said.

As the government is likely to receive a windfall of around Rs 2 lakh crore as this much money will not come back to the system, the government should not overly worry about fiscal deficit numbers.

"It (petrol price reduction) will have some impact on fiscal for this year but it is highly probable that some part of it is mitigated by one-off gains. So, these are calculated risks the government has to take," he said.

"That (cut in petrol price) is the easiest way of transferring wealth and it flows immediately. You cut Rs 5, the entire economy benefits from day one," he added.

According to the Petroleum Planning and Analysis Cell (PPAC), an arm of the Ministry of Petroleum and Natural Gas, fuel consumption surged 7.8 percent during April-October period of this year. Petrol consumption rose around 14 percent to 2.1 million tonne in October.

Meanwhile, many other equity research firms are also hopeful of a fiscal stimulus coming from the government. Deutsche Equities on Tuesday said stimulus measures like higher public investment or fuel price cut were likely to boost the economy.