Modi govt seeks to free up $12 billion to tackle inflation before LS vote

By Ruchi Bhatia

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.  

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. 

Uneven rains and floods in several parts of the country have led to the surge in prices of several household items, including key ingredients of an Indian meal such as tomatoes and onion. After a ban on wheat exports in 2022, the government curbed shipments of some rice varieties last month. It also imposed curbs on stockpiling some food staples.

© 2023 Bloomberg L.P.