Govt may spend `2 L cr more to fight inflation

„Another round of fuel tax cut not ruled out

The government is considering spending an additional Rs 2 lakh crore ($26 billion) in the 2022-23 fiscal year to cushion consumers from rising prices and fight multi-year high inflation, two government officials told Reuters.

The new measures will be double the Rs 1 lakh crore hit government revenues could take from tax cuts on petrol and diesel the finance minister announced on Saturday, both the officials said.

India's retail inflation rose to an eight-year high in April, while wholesale inflation rose to at least a 17-year high, posing a major headache for Prime Minister Narendra Modi's government ahead of elections to several state assemblies this year.

"We are fully focussed on bringing down inflation. The impact of Ukraine crisis was worse than anyone's imagination," one official, who did not want to be named, said.

The government estimates another Rs 50,000 crore additional funds will be needed to subsidise fertilisers, from the current estimate of Rs 2.15 lakh crore, the two officials said.

The government could also deliver another round of tax cuts on petrol and diesel if crude oil continues to rise that could mean an added hit of Rs 1 lakh crore-1.5 lakh crore this fiscal year, the second official said.

One of the officials said

the government may need to borrow additional sums from the market to fund these measures and that could mean a slippage from the its deficit target of 6.4 per cent of GDP for 2022-23.

The official did not quantify the amount of borrowing or fiscal slippage saying it depended on how much funds they eventually divert from the budget in the fiscal year.

The government plans to borrow a record Rs 14.31 lakh crore in the current fiscal year, according to budget announcements made in February.