Centre mulls ₹1 lakhcroreextra borrowing to offset fuel-tax cut
Over the weekend, the government cut levies on pump prices of petrol and diesel
NEW DELHI: India will probably borrow the entire ₹1 lakh crore ($12.9 billion) that the government will forgo as revenues due to a cut in gasoline and diesel levies, according to people familiar with the matter.
Higher collections from the goods and services tax as well as personal income taxes will be neutralized by additional spending on food and fertilizer subsidies that the government is giving to the poor and farmers, said the people, who declined to be identified as the discussions are private.
The loss to the exchequer due to the recent excise duty cuts will therefore have to be borne through additional market borrowings, the people said. Calls made to a finance ministry spokesman were unanswered outside of business hours in New Delhi.
The mounting debt load will probably spook India’s bond market, where yields on benchmark 10-year notes have surged over the past month. The Reserve Bank of India, which is already managing a record borrowing plan, surprised investors with an off-cycle increase in interest rates this month.
Over the weekend, the federal government cut levies on pump prices of gasoline and diesel, waived import tax on coking coal and increased payouts on fertilizers as well as cooking gas for the poor. It lowered excise duty on diesel by ₹6 ($0.077) a liter and gasoline by ₹8, according to a tweet from Finance Minister Nirmala Sitharaman.
The revenue loss comes at a time when investors are staring at a record borrowing program from the government, surging price pressures as reflected in the wholesale and consumer price index, and the prospect of sharp interest rate increases by the central bank.
India budgets to raise about ₹14.3 lakh crore through debt issuances in this financial year through March 2023. The entire borrowings are in local currency, with banks and insurance companies the biggest buyers of sovereign debt.
Analysts like Barclays Plc’s Chief India Economist Rahul Bajoria are raising their budget deficit estimates. Bajoria expects India’s budget gap to be at 6.9% for fiscal year 2022-23, up from New Delhi’s forecast of 6.4% of gross domestic product.
Petrol price on Sunday was slashed by ₹8.69 a litre and that of diesel by ₹7.05 per litre following the government’s decision to cut excise duty on auto fuels, giving relief to consumers battered by high fuel prices that had pushed inflation to a record high. The government had on Saturday announced a record ₹8 per litre cut in excise duty on petrol and ₹6 reduction on diesel. The excise duty cut will translate into a reduction of ₹8.69 a litre on petrol in Delhi and ₹7.05 in diesel per litre after taking into account its impact on other levies.