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Inflation Spike, Current Account Deficit(CAD) Concerns Easing; Govt Being Watchful

With the easing of global commodity prices and India witnessing a normal monsoon, concerns about any sharp spike in inflation or the current account deficit (CAD) are easing, a government source said. The government, however, is not letting its guard down and is watchful of the evolving situation, the source added.

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However, global crude oil prices are now moderating, and so are fertilizer 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.

Subsidy Burden Increases:

Despite having to bear additional fiscal burden, the Centre isn’t planning to slash the fertiliser subsidy rates at the moment, the source said. 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-Russia war.

State’s GST Finances:

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 prolonging 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.

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