Given the growing pressure on state finances due to the cut in fuel taxes, the Center needs to manage subsidies more tightly and in a more targeted manner, official sources said. The government on May 23 cut excise duty on petrol by Rs 8 per liter and diesel by Rs 6 per liter to cool record high inflation, sacrificing revenue of Rs 1 lakh per year. Earlier in April, the Center had approved a subsidy of Rs 60,939.23 crore for Phosphorus and Potassium (P&K) fertilizers, including DAP, for the first six months of this fiscal. This caused an additional burden on the fiscal deficit.
In addition, the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) has been extended by six months to September 2022 to help vulnerable sections of the population. As excise duty cuts on diesel and petrol have hit revenue collection, it would be challenging to meet the additional expenditure on food and fertilizer subsidies, sources said, adding that there is a need to manage subsidies in a tighter and more targeted manner.
Under PMGKAY, the government provides 5 kilograms of free ration per person per month in addition to the regular quota of food grains under the National Food Security Act.From April 2020 to September 2022, the government has earmarked 1,003,003 million tonnes of food for PMGKAY, which will benefit 80 million people for two and a half years.In addition, during the early months of the pandemic, the government transferred Rs 500 per month for three months to Jan Dhan account holders, totaling Rs 1,500 transfers each to 20 million women.Sources further said that India’s macroeconomic fundamentals are strong to deal with global challenges and the central government is committed to sticking to the fiscal deficit target of 6.4 percent of GDP for the current fiscal.
The fiscal deficit is the difference between the total revenue and expenditure of the government. It also indicates the total borrowing the government needs to bridge the gap. The fiscal deficit for the last financial year was limited to 6.7 percent of GDP, slightly lower than the 6.9 percent estimated in the FY’23 budget.The government is taking steps to address the increased oil prices in the international market, the sources added.India meets nearly 85 percent of its oil demand through imports, and a weaker rupee makes inbound shipments more expensive.
Commodity prices, including oil, are high due to the ongoing war between Russia and Ukraine and have led to inflationary pressures across countries, including India.The government is committed to sticking to the path of fiscal consolidation and this year’s budget has set the fiscal deficit at 6.4 percent of GDP. Sources said steps are being taken to address the situation arising out of rising oil prices.While acknowledging that there are strong global headwinds, the sources said the country’s macroeconomic fundamentals are strong enough to deal with the challenges.However, they added that the current account deficit (CAD) is expected to be high due to firm oil prices.In the last few years, India has had a low CAD, but this year there is a headwind on this front. But the macroeconomic situation and the foreign exchange reserve are better than in the past, the sources added.
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