RBI warns of fiscal slippage, inflation

Sounding a note of caution, the Reserve Bank today said reduction in GST rates, partial roll- back of duties on petroleum products and farm loan waivers by some states may lead to "fiscal slippage" fuelling inflation.
Releasing the Fifth Bi-Monthly Monetary Policy statement for 2017-18, it also raised the inflation forecast marginally to 4.3-4.7 per cent for the second half of the fiscal from earlier estimate of 4.2-4.6 per cent.
"...implementation of farm loan waivers by select states, partial roll back of excise duty and VAT in the case of petroleum products, and decrease in revenue on account of reduction in GST rates for several goods and services may result in fiscal slippage with attendant implications for inflation," it said.

The Goods and Services Tax (GST) Council had last month cut the tax rate on 178 items from 28 per cent to 18 per cent, leaving only 50 items in the highest tax slab.
It had reduced the rate on 27 items of common use in October as well.
GST collections were Rs 83,346 crore in October, down from over Rs 92,000 crore in the previous month.

As per a RBI paper, released in September, farm loan waiver amounting to Rs 88,000 crore likely to be released in 2017-18 by seven states, including Uttar Pradesh and Maharashtra, may push inflation on permanent basis by 0.2 per cent.

In October, the central government had cut excise duty on petrol as well as diesel with a view to moderating the rise in fuel prices witnessed for the previous three months. The duty reduction will lead to a Rs 13,000 crore loss of revenue to the government in the current fiscal.
Following the excise cut, several states too had reduced VAT on the fuel.