To shield its consumers from rising prices and fight multi-year high inflation, the Indian government is considering spending an additional 2 trillion rupees ($26 billion) in the 2022/23 fiscal year, two government officials told Reuters. The new measures will double the 1 trillion rupees hit government revenues could take from tax cuts on petrol and diesel, the finance minister announced on Saturday.
India’s retail inflation rose to an eight-year high in April, while wholesale inflation rose to at least a 17-year high. This poses a major challenge for Prime Minister Narendra Modi's government ahead of elections to several state assemblies this year.
"We are fully focussed on bringing down inflation. The impact of the Ukraine crisis was worse than anyone's imagination," one of the officials said.
The government estimates another 500 billion Indian rupees additional funds will be needed to subsidise fertilisers, from the current estimate of 2.15 trillion rupees, the two officials said. If crude oil continues to rise, the government could also deliver another round of tax cuts on petrol and diesel.
This would mean an added hit of 1 trillion-1.5 trillion rupees in the 2022-23 FY started on April 1, the second official said.
One of the officials said the government may need to borrow additional sums from the market to fund these measures and that could mean a slippage from its deficit target of 6.4% of GDP for 2022-23.
The Indian government plans to borrow a record 14.31 trillion rupees in the current fiscal year, according to budget announcements made in February.
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