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Indian authorities are contemplating a strategy to redistribute a potential sum of 1 trillion rupees (equivalent to $12 billion) from the budgets of various government ministries. This move aims to manage the escalation in food and fuel costs without jeopardizing the established federal deficit target. Those familiar with the situation have shared this information.
Prime Minister Narendra Modi is anticipated to decide in the upcoming weeks, potentially involving the reduction of taxes on domestic gasoline transactions and the relaxation of import tariffs on cooking oil and wheat. The sources, who requested anonymity due to the confidential nature of the discussions, have revealed this information.
This would mark the second consecutive year of such modifications aimed at curbing expenses for the general public, following the introduction of a $26-billion scheme last year. These suggestions come after the recent interest rate determination by the central bank, where it chose to keep borrowing costs unchanged – a stance that places it among the highest in Asia. The central bank highlighted concerns arising from the substantial rise in prices.
The stocks of Hindustan Petroleum Corp., Bharat Petroleum Corp., and Indian Oil Corp. managed to recover a portion of their previous declines following reports of India's intentions to reduce domestic fuel taxes.
Pressure is intensifying for government officials after Prime Minister Modi, in a recent address to the nation, pledged to combat inflation, which has escalated to a 15-month peak. In a country like India, the costs of essential items like onions and tomatoes have historically had the power to lead to changes in leadership. While Modi has a limited timeframe to control price increases to appease voters, he must also avoid significantly increasing the budget deficit, a matter closely monitored by global investors.
Shifting funds within the budget is a common practice in India. However, increased dividends from the central bank and consistent tax revenues, supported by the rapid economic growth that places India among the world's fastest-growing economies, provide a cushion of approximately one trillion rupees. This amount is equivalent to 2% of the budget allocated for the period up to March 2024, according to the sources.
This fiscal flexibility could also be utilized to offer more affordable loans and housing options for the underprivileged, all while adhering to the target of maintaining the budget deficit at 5.9% of the gross domestic product for the fiscal year that commenced on April 1, as per the sources.
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