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Monday, July 04, 2022

Inflation fight may have fiscal impact, but govt not looking to borrow more

The total revenue implication of the excise duty cuts is seen at Rs 2.2 lakh crore a year. This, coupled with an additional outgo of Rs 1.1 lakh crore on account of fertiliser subsidies, is expected to put pressure on government finances.

By: ENS Economic Bureau | New Delhi |
Updated: May 26, 2022 10:36:11 am
Indian rupee. (Express archive photo)

Even as the Centre’s recent measures to check runaway inflation and supply-side issues, through a combination of duty cuts and policy tweaks may end up having a fiscal impact, it is not looking at resorting to additional borrowings for the current financial year, a government source said.

The Centre is monitoring the revenue streams amid continuing tax buoyancy and a renewed focus on disinvestment, even as the proposed stake sales in Railways subsidiary CONCOR and downstream petroleum company BPCL is likely to draw out longer than expected. The source said the government is also exploring the possibility of increasing its exposure to Russian oil, but the terms of the discount is a matter under active discussion.

“It (the recent measures) may hit (the fiscal math). But we have to see how tax revenue grows as months pass. Last year, GST collections had improved mid-year onwards…at this moment, we do not need extra borrowing,” the source said.

The total revenue implication of the excise duty cuts is seen at Rs 2.2 lakh crore a year. This, coupled with an additional outgo of Rs 1.1 lakh crore on account of fertiliser subsidies, is expected to put pressure on government finances.

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Most of the inflationary pressures and supply-related constraints are being seen arising from the global uncertainty due to the Russia-Ukraine war, the source added. “The situation is constantly changing. We are facing problems largely emanating from outside and have to be ready and work on strengthening the economy,” the source said, adding that the government is not considering any revision in the inflation target of 2-6 per cent set by the Monetary Policy Framework of the Reserve Bank of India.

The current price situation leaves less scope for rationalisation of GST rates on goods and services as of now, the source noted.

The source said the government is going to continue with the rupee-ruble payment arrangement with Russia. “We have heard that ruble payment is being done by Europe. India had a Rupee-Ruble payment structure earlier. I don’t think we have arrived at any decision yet. Some discussions are happening. We have a mechanism already. We have to see if the existing system is workable in the current global situation. We are exploring that and some more related things,” the source said. Asked if India can increase its dependence on Russia for oil needs, the source said, it is subject to some payment mechanism being worked out.

The government is also looking at ironing out supply-chain and logistics-related issues for cement. “Cement prices have gone up as not enough supply is available and there is some reported cartelisation. The installed capacity for cement is lying idle in southern India. The government has received representations from industry in southern India for movement of cement. Logistics issues have to be resolved, we are looking into the matter,” the source said.

Disinvestment plans for CONCOR will take time to come through, the source said, adding that the stake sale for BPCL has not been shelved and is still on the table, along with proposed privatisation of public sector banks, the official said. On Wednesday, the Cabinet Committee on Economic Affairs approved the sale of its residual 29.5 per cent stake in Hindustan Zinc Ltd (HZL) as the Union government pushes ahead with its disinvestment drive. The sale of the entire government stake in HZL could fetch the Centre around Rs 38,000 crore at current share market price.

The government is likely to offload its shares in HZL in tranches through an offer for sale, official sources indicated.

The Department of Investment and Public Asset Management (DIPAM) is currently structuring the broad contours of the deal.

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