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  India   All India  18 Aug 2023  India Seeks to Carve Out $12 Billion to Cool Inflation

India Seeks to Carve Out $12 Billion to Cool Inflation

Published : Aug 18, 2023, 12:40 am IST
Updated : Aug 18, 2023, 12:40 am IST

Prime Minister Narendra Modi will take a decision in the coming weeks

Prime Minister Narendra Modi. (Photo: PTI)
 Prime Minister Narendra Modi. (Photo: PTI)

Indian officials are considering a plan to reallocate as much as 1 trillion rupees ($12 billion) from the budgets of various ministries to contain a surge in food and fuel costs without imperiling the federal deficit target, according to people familiar with the matter.

Prime Minister Narendra Modi will take a decision in the coming weeks, which could include lowering taxes on local gasoline sales and easing import tariffs on cooking oil and wheat, the people said, asking not to be identified as the discussions are private.

It would be the second straight year of similar adjustments to contain costs for consumers after the government unveiled a $26-billion plan last year. The proposals follow the central bank’s last week rate decision where it left borrowing costs unchanged — one of the highest in Asia — flagging risks from soaring prices.  

Shares of Hindustan Petroleum Corp., Bharat Petroleum Corp. and Indian Oil Corp. erased some of the earlier losses on news that India will cut domestic fuel taxes.

Urgency is building for bureaucrats after Modi in a speech to the nation this week vowed to fight inflation that has surged to a 15-month high. India is a country where the cost of onions and tomatoes has toppled governments. While Modi has just months to rein in prices for voters, he also cannot afford to blow out the budget deficit that is being closely watched by global investors.

Budgetary re-allocations aren’t unusual in India, but higher dividend payments from the central bank and steady tax collections as the economy grows at one of the fastest paces in the world allow for legroom of about a trillion rupees, equivalent to 2% of the budget for the year through March 2024, the people said.

The fiscal space could also be used to provide cheaper loans and homes for the poor, while sticking to the budget deficit target of 5.9% of the gross domestic product for the year that started April 1, they said.

A Finance Ministry spokesperson didn’t respond to requests seeking comments.

Tags: prime minister narendra modi, hindustan petroleum corp, bharat petroleum corp