Amid a moderation in global commodity prices and normal monsoon showers in India, concerns about any further flare-up in inflation or current account deficit (CAD) are easing, a government source said on Thursday. Nevertheless, the government isn’t letting the guard down, the source added.
The centre isn’t planning to slash the fertiliser subsidy rates at the moment, despite having to bear the elevated burden, said the source. It doesn’t wish to add to farmers’ costs of production at this juncture. The government’s fertiliser subsidy Bill is expected to exceed its FY23 budget estimate of Rs
1.05 trillion by about Rs 1.4 trillion, as global prices shot up in the wake of the Ukraine war.
The Centre is also unlikely to commit to extending the GST compensation for states beyond five years through FY22, acceding to some states’ demand, as any such decision will mean prolonguing cess burden on consumers, said the source. “Will all the states be ready to say let’s keep the cess on the items in the 28% or 18% brackets for a much longer period to fund the GST compensation? These are things we all have to bear in mind,” said the source, indicating that the Centre isn’t going to take on extra burden on this front.
“(However) Global crude oil prices are now moderating, so are fertiliser prices. So, the magnitude of worry that was there in March (just after the Ukraine war) has eased now. But we are closely watching the situation,” said the source.
Retail inflation in July, official data for which will be released on Friday, is expected to ease 20-25 basis points sequentially from the June level of 7.01% to a hit a five-month low, according to some analysts. Retail inflation remained above the upper band of the Reserve Bank of India’s (RBI’s) medium-term target of 2-6% for a sixth straight month through June. The aim is to first bring inflation down to 6%, said the source. Trade deficit, the most important component of the CAD, is expected to moderate from July’s record level of $31 billion.
India, the source stressed, is in a much better position than peers on the economy front, and the raft of steps initiated by the government and the central bank have started to yield results. To contain price rise, the Centre has cut fuel taxes, raised the export duty on select steel products and iron ore and cut import duty on pulses, among others. For its part, the central bank has raised the repo rate three times since May to push it above the pre-pandemic level.
The recent volatility in the crypto-currency market itself has stirred a debate among its followers about the merits and demerits of these virtual assets, which augurs well for policy-makers across the globe, as they weigh how to regulate such assets, said the source.
As India is set to take over the G20 presidency in December, the forum can be used to firm up a global strategy on the regulation of crypto-currencies. As such, India has been seeking to drum up support for such a global approach on cryptos, given the cross-border nature of such transactions. However, the government is yet to take a final call on whether or not to push for such an agenda at the G20, said the source.
The government is serious about pursuing disinvestment of all the companies that it has announced, said the source. In certain cases, the process is taking longer, as it involves comprehensive deliberations involving multiple stakeholders. The government has budgeted to rake in Rs 65,000 crore in disinvestment receipts in FY23, against a poor realisation of just Rs 13,531 crore in FY22, after the initial public offer of LIC was deferred to this fiscal.