India plans to spend an additional 26 26 billion to tackle inflation, sources said

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NEW DELHI – The Indian government is considering spending an additional Rs 2 trillion ($ 26 billion) in FY 2022/23 to protect consumers from rising prices and combat many years of high inflation, two government officials told Reuters.

On Saturday, the finance minister announced that tax cuts on petrol and diesel would double the 1 trillion rupees that could hit government revenue, both officials said.

India’s retail inflation hit an eight-year high in April, with wholesale inflation hitting a 17-year high, a major headache for Prime Minister Narendra Modi’s government ahead of several state assembly elections this year.

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“We are focused on reducing inflation altogether,” he said. The effects of the Ukraine crisis were worse than anyone could have imagined, “said an official, speaking on condition of anonymity.

The government estimates that an additional 500 billion Indian rupees will be needed to subsidize fertilizers, up from the current estimate of 2.15 trillion rupees, two officials said.

If crude oil prices continue to rise, the government could cut taxes further on petrol and diesel, which could mean an additional টাকার 1 trillion-1.5 trillion in fiscal year 2022/23 starting April 1, a second official said.

Both officials declined to be named because they were not authorized to disclose details.

The government did not immediately return calls seeking comment.

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An official said the government may have to borrow extra money from the market to fund these measures and that could mean it slips from the deficit target of 6.4% of GDP for 2022-23.

The official did not measure the amount borrowed or the financial slippage, depending on how much funds they removed from the budget in the fiscal year.

As per the budget announcement in February, the Indian government plans to borrow a record Rs 14.31 trillion in the current financial year.

Another official said the additional debt of Rs 8.45 trillion would not affect the planned April-September borrowing and could be taken in January-March 2023.

($ 1 = 77.8500 Indian Rupees)

(Reporting by Aftab Ahmed; Editing by Amelia Sithol-Mataris)