Indian government revenue expected to take Rs 1 lakh crore hit due to tax cuts on petrol and diesel

The Indian government revenue is expected to take Rs 1 lakh crore hit from tax cuts on petrol and diesel and the additional gas subsidy announced on Saturday.

According to a Bloomberg report, India will probably borrow the entire Rs 1 lakh crore ($12.9 billion) that the government will forgo in its political gambit to tame inflation.

But additional market borrowings of such magnitude to offset the loss to the exchequer are invariably fraught with risk. For instance, the mounting debt load will probably spook India’s bond market, where yields on benchmark 10-year notes have surged over the past month.

Also, the revenue loss comes at a time when investors are already 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.

According to a Reuters report, the government could also deliver another round of tax cuts on petrol and diesel if crude oil continues to rise. This could mean an added hit of Rs 1 lakh crore-1.5 lakh crore in the 2022/23 fiscal year.

Apart from the duty cuts, the increased payouts on fertilizers as well as cooking gas for the poor will neutralise higher collections from the goods and services tax as well as personal income taxes. So, cushioning consumers from rising prices will not be a cake walk for the Modi dispensation. India’s retail inflation rose to an eight-year high in April.

Reuters cited one unnamed official as saying that the additional sums that the government may borrow from the market to fund these measures could mean a slippage from the its deficit target of 6.4% of the GDP for 2022-23.

Published on: Sunday, May 22, 2022, 11:59 PM IST