Govt considers spending additional Rs 2 lakh crore to combat inflation

NEW DELHI: The Central government is considering spending an additional Rs 2 lakh crore ($26 billion) in the 2022-23 fiscal year to cushion consumers from rising prices and fight multi-year high inflation, two government officials said.

The new measures will be double the Rs 1 lakh crore hit government revenues could take from tax cuts on petrol and diesel, Finance Minister Nirmala Sitharaman announced on Saturday, the officials said.

India’s retail inflation rose to an eight-year high in April, while wholesale inflation rose to at least a 17-year high, posing a concern for Prime Minister Narendra Modi’s government ahead of elections to several state assemblies this year.

“We are fully focused on bringing down inflation. The impact of Ukraine crisis was worse than anyone could fathom,” one official, said on conditions of anonimity.

The government estimates another Rs 50,000 crore additional funds will be needed to subsidise fertilisers, from the current estimate of Rs 2.15 lakh crore, the two officials said.

The government could also deliver another round of tax cuts on petrol and diesel if crude oil continues to rise that could mean an added hit of Rs 1 lakh crore - Rs 1.5 lakh crore in 2022-23 started on April 1, the second official said.

One of the officials further said that the government may need to borrow additional sums from the market to fund these measures and that could mean a slippage from the its deficit target of 6.4% of GDP for 2022-23. The official did not quantify the amount of borrowing or fiscal slippage saying it depended on how much funds they eventually divert from the budget in the fiscal year.

The Centre plans to borrow a record Rs 14.31 lakh crore in the current fiscal year, according to budget announcements made in February. The other official said the additional borrowing will not impact the planned April-September borrowing of Rs 8.45 lakh crore and may be undertaken in January-March 2023.