India’s debt: India plans to borrow another $13 billion to offset fuel tax cut

India is likely to borrow all of the Rs 1 lakh crore ($12.9 billion) the government forgoes as revenue due to a cut in petrol and diesel taxes, according to people familiar with the matter .

Increased collections of goods and services tax as well as personal income tax will be offset by additional spending on food subsidies and fertilizers the government provides to the poor and farmers, the people said. , who declined to be identified as the discussions are private. .

The loss to the Treasury from recent excise duty cuts will therefore have to be borne by additional market borrowing, the people said. Calls to a finance ministry spokesperson went unanswered outside office hours in New Delhi.

The growing debt burden is likely to spook the Indian bond market, where yields on benchmark 10-year bonds have surged over the past month. The Reserve Bank of India, which is already running a record borrowing plan, surprised investors with an off-cycle interest rate hike this month.

Borrowing record

Over the weekend, the central government cut taxes on gasoline and diesel pump prices, scrapped the import tax on coking coal and increased payments on fertilizers as well than cooking gas for the poor. It lowered excise duty on diesel by Rs 6 a liter and petrol by Rs 8, according to a tweet from Finance Minister Nirmala Sitharaman.

The revenue loss comes at a time when investors are facing a record government borrowing program, mounting price pressures as evidenced by the wholesale and consumer price index, and the prospect of sharp interest rate hikes by the central bank.

India plans to raise around Rs 14.3 lakh crore through debt issuances in this fiscal year to March 2023. All borrowing is in local currency, with banks and insurance companies being the biggest buyers of sovereign debt.

Analysts like Barclays Plc’s chief Indian economist, Rahul Bajoria, are raising their budget deficit estimates. Bajoria expects India’s fiscal gap to be 6.9% for FY 2022-23, up from New Delhi’s forecast of 6.4% of gross domestic product.

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John A. Bogar