Government seeks to borrow an additional $13 billion to offset gasoline and diesel tax cuts
India is likely to borrow the full 1 trillion rupees ($12.9 billion) the government will forgo as revenue due to a cut in petrol and diesel taxes, according to people close to the government. case.
Increased collections of goods and services tax as well as personal income tax will be offset by additional spending on food subsidies and fertilizers the government provides to the poor and farmers, the people said. , who declined to be identified as the discussions are private. .
The loss to the Treasury from recent excise duty cuts will therefore have to be borne by additional market borrowing, the people said. Calls to a finance ministry spokesperson went unanswered outside office hours in New Delhi.
The growing debt load is likely to spook the Indian bond market, where yields on benchmark 10-year bonds have jumped over the past month. The Reserve Bank of India, which is already running a record borrowing plan, surprised investors with an off-cycle interest rate hike this month.
Over the weekend, the federal government cut taxes on gasoline and diesel pump prices, removed the import tax on coking coal and increased payments on fertilizers as well than cooking gas for the poor. It lowered excise duty on diesel by 6 rupees ($0.077) per liter and on petrol by 8 rupees, according to a tweet from Finance Minister Nirmala Sitharaman.
The revenue loss comes at a time when investors are facing a record government borrowing program, mounting price pressures as evidenced by the wholesale and consumer price index, and the prospect of sharp interest rate hikes by the central bank.
India plans to raise around 14.3 trillion rupees through debt issuance in this fiscal year to March 2023. All borrowing is in local currency with banks and insurance companies being the biggest buyers of sovereign debt.
Analysts like Barclays Plc’s chief Indian economist, Rahul Bajoria, are raising their budget deficit estimates. Bajoria expects India’s fiscal gap to be 6.9% for the financial year 2022-23, up from New Delhi’s forecast of 6.4% of gross domestic product.
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