The government is considering spending an additional Rs 2 lakh crores ($26 billion) in the current tax to protect consumers from rising prices and combat multi-year high inflation, two government officials told Reuters.
The new measures will be double the Rs 1 lakh crore that government revenue could derive from tax cuts on petrol and diesel, the finance minister announced on Saturday, both officials said.
Indian retail inflation rose to an eight-year high in April, while wholesale inflation rose to at least a 17-year high, giving Prime Minister Narendra Modi’s government a major headache ahead of several state assembly elections this year.
“We are fully focused on reducing inflation. The impact of the crisis in Ukraine was worse than anyone can imagine,” said an official, who declined to be named.
The government estimates that an additional Rs 50,000 crore will be needed to subsidize fertilizers, from the current estimate of Rs 2.15 lakh crore, the two officials said.
The government could also implement another round of tax cuts on petrol and diesel if crude oil continues to rise, which could add another blow of Rs 1 lakh crore – Rs 1.5 lakh crore in 2022-23 started on April 1, said the second officer .
Both officials declined to be named as they are not authorized to release the details.
The government did not immediately comment outside office hours.
One of the officials said the government may need to borrow additional amounts from the market to fund these measures and that this could mean meeting the deficit target of 6.4 percent of GDP for 2022-23.
The official did not quantify the amount of loans or tax slippages, saying it depended on how much money they end up taking out of the budget in the fiscal year.
The government plans to borrow a record amount of Rs 14.31 lakh crore in the current fiscal year, according to budget announcements made in February.
The other official said the additional loan will not affect the planned April-September loan of Rs 8.45 lakh crore and possibly January-March 2023.
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