The additional borrowing requirement will be worked out later as the financial year has just begun, the person said on condition of anonymity.
The government expects a tax cut on fuel over the weekend to pacify inflation, which hit an eight-year high in April.
Following the hike in fertilizer subsidy in April, the central government on Saturday reduced duty on petrol, diesel and imported inputs for making steel and petrochemicals.
However, these measures to contain inflation also mean gross market borrowing. 14.3 trillion budget for FY23 will not be enough for the year.
“The additional fertilizer subsidy announced in April was almost balanced against the additional tax revenue collection expected in this fiscal. But this time, with reduction in excise duty and import duty, the government will have to cut some revenue expenditure or borrow additional or do both,” the official said.
In April, the government announced higher nutrient subsidy rates for the kharif season to absorb import costs, which have risen due to the war in Ukraine, given India’s complete import dependence on some fertilisers.
Finance Minister Nirmala Sitharaman pointed 1 trillion revenue loss due to cut in excise duty on auto fuels, in addition to an additional 1.1 trillion in fertilizer subsidy expenditure, in addition to 1.05 lakh crore subsidy announced in the budget
Saturday’s LPG subsidy announcement will add an extra 6,100 crore for the subsidy bill.
Lower revenue collections and increased subsidy outgo are expected to drive India’s FY23 fiscal deficit beyond budget, with various agencies including the Reserve Bank of India (RBI) downgraded growth projections for India 1.6 trillion.
The effect of reduction in duty also has an effect at the state level.
Kerala Finance Minister KN Balagopal said that in response to the Centre’s reduction in excise duty, the state will pass on the benefit of the resultant value added tax (VAT) reduction to the people. States levy VAT as a percentage of the price refineries charge dealers including excise duty (valorum rate), while some states have a combination of the pricing rate and a specific duty in terms of rupees per litre.
“We (LDF government) never increased VAT on petrol and diesel in the last six years, and once we reduced the rates. It was a practice to raise VAT rates slightly during the earlier United Democratic Front government, when the central government lowered excise duty, which limited benefits to consumers to the extent of a reduction in central excise duty, a practice we have never seen before. Didn’t,” Balagopal said in the interview.
Balagopal said that since his government had never adjusted VAT rates as such, it was no longer reducing the ad valorem rate and was instead giving consumers the consequent relief on VAT in rupee terms, Balagopal said. said. Consumers in Kerala benefit 2.41 liters on petrol and 1.36 per liter on diesel.
Rajasthan Chief Minister Ashok Gehlot tweeted on Saturday that after the reduction in central fee, the VAT levied by the state has also come down. 2.48 liters and buy on petrol 1.16 liters on diesel.
Tamil Nadu Finance Minister Palanivel Thiaga Rajan on Sunday said it was not fair to expect states to reduce taxes, while Maharashtra said it was passing on benefits in rupee terms to consumers.
The central government has already cut import duty on edible oils to contain inflation and is expecting a normal monsoon to bring down food price inflation. However, on other items, the scope of government intervention is limited, for example by increasing the supply of certain goods by easing logistics.
“This is imported inflation. There is a limit to what the government can do as it is driven by the global situation, and we may have to wait patiently for these factors to subside,” the official said.
Describing the cut in excise duty as a prudent move, former chief statistician of India Pranab Sen said that on the one hand, the move would help in reducing the “cost-push” factor of inflation, and on the other, it would also boost Will give Expansion of fiscal deficit. “This has probably created room for the RBI to be more aggressive on its rate hikes,” he said.
“Now the real question is how does the RBI do it because what is going to happen, if everything else is left unchanged, the fiscal deficit will go up. Any thought on how the government is planning to adjust It is still too early as this is going to reduce government revenue,” Sen said.
Sen pointed out that the cut in public spending could be contractionary, which may not leave much room for the RBI to check inflation. The government, however, is only looking at cutting revenue spending, while productive capital spending remains a priority.
Sen said states face a “tough budget constraint”, which means if they cut taxes on fuel, they have no choice but to cut spending. “It doesn’t really help,” he said.
In a series of tweets, Sitharaman said the fuel tax cut on Saturday as well as last November was on the cess, and hence, the loss due to the cut was entirely on the central government.
Former finance minister P. Chidambaram, in a tweet on Sunday, said states are getting little as part of the Centre’s duties on petrol and diesel and their revenue was from VAT on the two fuels. “I wonder if they can afford to give up that revenue unless the Center transfers more money or grants them more. The situation is like being between ‘the devil and the deep sea’.”
Tamil Nadu minister Thiaga Rajan said, “It is pertinent to state that when states increased taxes on petrol and diesel several times, the union never consulted them. The excessive increase in taxes by the central government has been only partially mitigated through their reduction, and taxes remain high compared to 2014 rates. Therefore, it is neither fair nor reasonable to expect the states to reduce their prices.”
Though fuel prices declined on Sunday after the previous day’s duty cut, experts said retail prices are unlikely to fall further as oil marketing companies are already battling high oil prices and under-recoveries. Huh.
Deloitte partner Debashish Mishra said that although A 10 per liter increase in diesel and petrol prices during March-April would have covered the rise in crude oil prices by around $16-18 per barrel, among other factors such as rupee depreciation, accumulated under-recoveries and elevated crackdown. Spreads would be adversely impacting oil margins. marketing companies.
“The Indian crude oil basket is hovering around $105 and $110 per barrel. Second, the rupee has come down to 78 (per dollar). Taking all these together there will still be some under-recovery.”