India released $26 billion in inflation-fighting fiscal measures, including lower fuel taxes and import tariffs, putting further pressure on government borrowing and bonds while joining the central bank’s attempts to keep inflation under control.
Two government sources told Reuters that the Indian government is considering investing an extra Rs 2 lakh crore ($26 billion) in the fiscal year 2022/23 to protect consumers from increasing costs and combat multi-year high inflation.
Both sources claimed the additional measures would more than treble the Rs 1 lakh crore(half of $26 billion ) blow to government revenues that tax cuts on gasoline and diesel announced by the finance minister on Saturday.
Impact of the War
In April, retail inflation in India reached an eight-year high, while wholesale inflation reached at least a 17-year high, providing a big challenge for Prime Minister Narendra Modi‘s government ahead of state assembly elections this year.
“We are entirely focused on lowering inflation.
“The consequences of the Ukraine crisis were far worse than anyone could have imagined,” one official, who did not want to be identified, said.
According to the two officials, the government expects that another Rs 50,000 crore in extra funding will be required to subsidise fertilisers, up from the current estimate of Rs 2.15 lakh crore.
If crude oil prices continue to climb, the government may implement another round of tax cuts on gasoline and diesel, costing the government an additional Rs 1 lakh crore to 1.5 lakh crore in the fiscal year that began on April 1, according to the second official.
Both officials declined to be identified because they were not authorised to discuss the information.
Outside of business hours, the administration did not respond.
FY23
According to one of the officials, the government may need to borrow more funds from the market to support these initiatives, resulting in a deviation from the 6.4 percent of GDP deficit target for 2022-23.
According to the official, the amount of borrowing or fiscal slippage depends on how much money is diverted from the budget over the fiscal year.
According to budget projections made in February, the Indian government aims to borrow a record Rs 14.31 lakh crore in the current fiscal year.
‘The United Front’
The government’s actions reflect the RBI’s recent tilt toward battling inflation, which included a rate hike earlier this month. The central bank is projected to keep hiking rates throughout the year since prices are expected to remain over its goal for most of the year.
In a report published Sunday, Citigroup Inc.’s Samiran Chakraborty and Baqar Zaidi wrote, “Fiscal and monetary authorities are presenting a cohesive front in their fight against inflation.”
In the financial year ending March 2024, India had planned to raise around 14.3 lakh crore through debt issuances. Banks and insurance firms are the largest buyers of the national debt, with the total borrowings in local currency.
According to the second source, the additional borrowing would not affect the projected Rs 8.45 lakh crore in April-September and may be done in January-March 2024.
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