Sunday, 26 June, 2022
HomeEconomyModi govt won’t borrow extra this year to fund tax cuts, inflation...

Modi govt won’t borrow extra this year to fund tax cuts, inflation target to stay at 4%

The cut in excise duty last week, coupled with an increase in fertiliser and food subsidies, is expected to cost the exchequer around Rs 3 lakh crore in the current financial year.

Text Size:

New Delhi: The Narendra Modi government has no plans to borrow additional funds from the bond markets to fund the costs incurred by cutting down excise duty on petrol and diesel, a top government official said. Instead, it will balance its fiscal position with its revenues.

“We will not borrow extra as of now. We will stick to our borrowing calendar,” the official told the press Wednesday.

The official also said that the government will not revisit the inflation target of 4 per cent — with a tolerance band of 2-6 per cent — until 2025-26, which is the time when the target will come up for an official review.

Tolerance band is an error margin kept to allow for shocks to the economy.

“Revision in inflation target is not on the table,” the official said.

Yields on the government securities rose Monday after reports emerged that the government would fund the cost of the excise duty cut on auto fuels through market borrowing, which is already at a record high in 2022-23 at Rs 14.31 lakh crore.

The official’s comments come on the back of retail inflation recording an eight-year high of 7.79 per cent in April. Inflation based on wholesale prices, too, reached a nine-year high of 15.08 per cent in the same month.

The central government Saturday cut the excise duty on petrol by Rs 8 and diesel by Rs 6 to curb inflation. Finance Minister Nirmala Sitharaman said in a tweet: “The announcement will have revenue implications of Rs 1 lakh crore for the government.”

Along with this, she also announced that the government will increase the subsidy on fertiliser for farmers by Rs 1.10 lakh crore and provide a subsidy of Rs 200 per cylinder, up to 12 cylinders, for the beneficiaries of the Pradhan Mantri Ujjwala Yojana.

Currently, petrol is sold at Rs 96.72 per litre in the national capital while diesel is sold at Rs 89.62 per litre.

The cut in excise duty, coupled with an increase in fertiliser and food subsidies, is expected to cost the exchequer around Rs 3 lakh crore in the current financial year.


Also Read: Why Modi govt’s modest Rs 65,000 crore disinvestment target for FY23 seems to be a tall order


Inflation target 

In an article published in the Economic and Political Weekly, Reserve Bank of India (RBI) Deputy Governor Michael Patra and his colleague Indranil Bhattacharyya, a director in the RBI’s monetary policy department, said that the inflation target needs to be updated as estimates for other economic parameters such as natural real interest rates have undergone changes.

“India’s inflation target of 4 per cent is in alignment with trend inflation right up to 2019-20. As data points for the pandemic period form, this estimate will have to be updated along with those for the natural real rate of interest that was placed in the range of 1.6-1.8 per cent in the pre-pandemic period,” the authors said.

“Likewise, estimates of threshold inflation — beyond which inflation retards growth — which worked out to 6 per cent in the pre-pandemic period, will also need re-estimation as the output gap closes,” they added.

The government retained the inflation target of 4 per cent with a tolerance band of 2-6 per cent for a period of five years until 2025-26 on 31 March 2021.

The official also said that the plan to privatise two state-owned banks announced in Budget 2021-22 is on track, and that the government would want to do it in the current fiscal year.

(Edited by Uttara Ramaswamy)


Also Read: As inflation breaks records, Modi govt plans to counter criticism ahead of anniversary & polls


Subscribe to our channels on YouTube & Telegram

Why news media is in crisis & How you can fix it

India needs free, fair, non-hyphenated and questioning journalism even more as it faces multiple crises.

But the news media is in a crisis of its own. There have been brutal layoffs and pay-cuts. The best of journalism is shrinking, yielding to crude prime-time spectacle.

ThePrint has the finest young reporters, columnists and editors working for it. Sustaining journalism of this quality needs smart and thinking people like you to pay for it. Whether you live in India or overseas, you can do it here.

Support Our Journalism

Most Popular

×