India considering spending additional $26 billion to fight inflation

The Indian government is considering spending an additional Rs 2 trillion ($26 billion) in the 2022–23 fiscal year to cushion consumers from rising prices and fight multi-year high inflation, two government officials told Reuters.

The new measures will be double the Rs 1 trillion ($12.8 billion) hit government revenues could take from tax cuts on petrol and diesel that the finance minister announced on Saturday.

India’s retail inflation rose to an eight-year high in April, while wholesale inflation rose to at least a 17-year-high, posing a major headache for Prime Minister Narendra Modi’s government ahead of elections to several state assemblies this year.

The government estimates another Rs 500 billion ($6.42 billion) in additional funds will be needed to subsidize fertilizers, from the current estimate of Rs 2.15 trillion ($27.6 billion).

The government could also deliver another round of tax cuts on petrol and diesel if crude oil continues to rise, which could mean an added hit of Rs 1 trillion ($12.8 billion) -1.5 trillion ($19.3 billion) in the 2022/23 fiscal year that started on April 1.

To execute all these, the government may need to borrow additional sums from the market to fund these measures and that could mean a slippage from its deficit target of 6.4 percent of GDP for 2022-23. 

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