Centre mulls spending over ₹2 lakh crore to fight inflation, say sources

Retail inflation rose to an eight-year high in April, while wholesale inflation rose to at least a 17-year high.

A view of a local mandi at Nasirpur in Dwarka. File | Photo Credit: V.V. Krishnan

The government is considering spending an additional ₹2 lakh crore ($26 billion) in the 2022-23 fiscal year to cushion consumers from rising prices and fight multi-year high inflation, two government officials told Reuters.

The new measures will be double the ₹1 lakh crore hit government revenues could take from tax cuts on petrol and diesel the Finance Minister announced on May 21, both the officials said.

Retail inflation rose to an eight-year high in April, while wholesale inflation rose to at least a 17-year high, posing a major headache for Prime Minister Narendra Modi's government ahead of elections to several State Assemblies in 2022.

"We are fully focussed on bringing down inflation. The impact of Ukraine crisis was worse than anyone's imagination," one official, who did not want to be named, said.

The government estimates another ₹500 billion additional funds will be needed to subsidise fertilizers, from the current estimate of ₹2.15 lakh crore, the two officials said.

The government could also deliver another round of tax cuts on petrol and diesel if crude oil continues to rise that could mean an added hit of ₹1 lakh crore-₹1.5 lakh crore in the 2022/23 fiscal year started on April 1, the second official said.

Both the officials did not want to be named as they are not authorised to disclose the details.

The government did not immediately comment outside office hours.

One of the officials said the government may need to borrow additional sums from the market to fund these measures and that could mean a slippage from the its deficit target of 6.4% of GDP for 2022-23.

The official did not quantify the amount of borrowing or fiscal slippage saying it depended on how much funds they eventually divert from the budget in the fiscal year.

The government plans to borrow a record ₹14.31 lakh crore in the current fiscal year, according to budget announcements made in February.

The other official said the additional borrowing will not impact the planned April-September borrowing of ₹8.45 lakh crore and may be undertaken in January-March 2023.