Delhi News

‘Inflation spike, CAD concerns easing; govt being watchful’

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

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.

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.

“(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,” the source said.

The official data for retail inflation in July will be released on Friday and it is expected to ease 20-25 basis points sequentially from the June level of 7.01 per cent, according to some analysts. Retail inflation has remained above the upper band of the Reserve Bank of India’s (RBI’s) medium-term target of 2-6 per cent for the sixth straight month till June. The aim is to first bring inflation down to 6 per cent, the source said.

India is in a much better position than peers on the economic front, and the steps initiated by the government and the central bank have started to yield results, the source said. The Centre has taken measures to check inflation by reducing fuel taxes, raising the export duty on select steel products and iron ore and cut import duty on pulses, among others.

On cryptocurrency, the source said that the recent volatility in the cryptocurrency market has started a debate among its followers about the merits and demerits of these virtual assets, which augurs well for policymakers across the globe, as they weigh how to regulate such assets.

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. 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.

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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 garner

Rs 65,000 crore in disinvestment receipts in FY23, against a realisation of just Rs 13,531 crore in FY22, after the initial public offer of LIC was deferred to this fiscal.

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