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India may borrow $13B more to cover cut in fuel taxes

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India may borrow $13B more to cover cut in fuel taxes

India will almost certainly borrow the whole $12.9 billion in revenue that the government would lose owing to a reduction in petrol and diesel levies. The rising debt burden is likely to frighten the country’s bond market, where rates on benchmark 10-year notes have risen.

According to persons acquainted with the situation, India will likely borrow the full Rs 1 lakh crore ($12.9 billion) in revenue that the government would lose owing to a reduction in petrol and diesel levies.

Higher revenues from the goods and services tax and personal income taxes will be offset by greater government spending on food and fertilizer subsidies for the poor and farmers, according to the sources, who declined to be identified because the talks are private.

According to the sources, the exchequer’s loss as a result of the recent excise tax reduction will have to be offset by fresh market borrowings. Outside of business hours in New Delhi, calls to a finance ministry official went unanswered.

The rising debt burden is likely to frighten India’s bond market, where rates on benchmark 10-year notes have risen in the last month.

The Reserve Bank of India, which is already overseeing a record borrowing plan, startled markets this month by raising interest rates off-cycle. Over the weekend, the Central Government reduced levies on petrol and diesel pump prices, eliminated import taxes on coking coal, and raised payments to the needy for fertilizer and cooking gas.

According to a tweet from Finance Minister Nirmala Sitharaman, it reduced excise tax on fuel by Rs 6 per liter and gasoline by Rs 8.

The income loss comes as investors face a record government borrowing program, growing price pressures as indicated in the wholesale and consumer price indexes, and the potential of rapid interest rate rises by the central bank.

In current fiscal year to March 2023, India plans to raise around Rs 14.3 lakh crore through debt issuances. The whole amount borrowed is in local currency, with banks and insurance firms being the largest buyers of national debt.

Analysts such as Barclays Plc’s Chief India Economist Rahul Bajoria are boosting their projections of the budget deficit. According to Bajoria, India’s budget imbalance would reach 6.9 percent of GDP in fiscal year 2022-23, up from New Delhi’s prediction of 6.4 percent.

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