Govt may cut revenue spend, borrow extra
NEW DELHI: The government may borrow more than budgeted this fiscal, reduce revenue expenditure, or do both, as the recent duty cuts and subsidy hikes threaten to upset its fiscal math, an official aware of the discussions in the government said.
The additional borrowing requirement will be worked out later as the fiscal year has just started, the person said on the condition of anonymity.
The government expects the tax cuts on fuel over the weekend to cool inflation, which shot up to an eight-year high in April, will lead to a budget mismatch.
Following a fertilizer subsidy hike in April, the Union government on Saturday reduced duties on petrol, diesel and imported inputs to make steel and petrochemicals.
However, these measures to tame inflation also mean the gross market borrowing of ₹14.3 lakh crore budgeted for FY23 won’t be enough for the year.
“The additional fertilizer subsidy announced in April was roughly balancing against the expected additional tax revenue collection this fiscal. But this time, with the excise and import duty cuts, the government has to cut certain revenue expenditure or go for additional borrowing 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 soared due to the war in Ukraine, given India’s complete import dependence on some fertilizers.
Finance minister Nirmala Sitharaman pointed to a ₹1 lakh crore revenue loss because of excise duty cut on auto fuels, besides an extra ₹1.1 lakh crore in fertilizer subsidy outgo, in addition to the ₹1.05 lakh crore subsidy announced in the budget. Saturday’s cooking gas subsidy announcement will add an additional ₹6,100 crore to the subsidy bill.
With growth projections for India lowered by various agencies, including the Reserve Bank of India (RBI), the reduced revenue collections and increased subsidy outgo are expected to drive India’s FY23 fiscal deficit beyond the budgeted ₹1.6 lakh crore.
The duty cuts have implications at the state level as well.
Kerala finance minister K.N. Balagopal said that in response to the Centre’s excise duty reduction, the state would pass on the benefit of the resultant valueadded tax (VAT) reduction in rupee terms to the people. States levy VAT as a percentage of the price refineries charge to dealers, inclusive of excise duty (ad valorem rate), while some states have a combination of ad valorem rate and a specific duty in terms of rupees per litre.
Rajasthan CM Ashok Gehlot tweeted on Saturday that following the central duty cut, VAT levied by the state, too, comes down by ₹2.48 a litre on petrol and by ₹1.16 a litre on diesel.