The government is considering some more short- to medium-term measures that can dampen inflation further after cutting excise duty last week to bring down prices of petrol and diesel, said people with knowledge of the matter. The measures under consideration include a reduction in customs duty for essential items such as edible oil and other imported raw materials for industries.
A cut in the Agriculture Infrastructure Development Cess (AIDC) - levied on some imports - is also under deliberation.
The government is keen to help with inflation management so that monetary tightening is kept to the minimum, as a sharp rise in interest rates can derail the economic recovery.Officials from the finance ministry and the Prime Minister's Office (PMO) had last week discussed steps to rein in prices, said people with knowledge of the discussions.
"The target is to reduce inflation by 60-70 basis points (in short to medium term) and there can be another round of duty cuts," a senior official told ET.
Retail inflation hit an eight-year high of 7.79% in April. A basis point is 0.01 percentage point.
The import duty on palm oil has already been reduced to a minimum. The Centre is now looking at reducing the 35% import duty on varieties such as rice bran, canola, palm kernel and olive oil among others, they said.
List Sought from Commerce Min
The move will reduce the dependence on palm oil, supply of which was hit by an export ban imposed by Indonesia. The ban has been lifted and prices have cooled, but the government is keen to diversify edible oil consumption to reduce risks. India imports nine million tonnes of palm oil annually, about 40% of India's overall edible oil consumption. Sunflower oil supply has been hit as 90% is imported from Ukraine, which Russia invaded on February 24.
Also under consideration are further duty cuts on essential raw materials on which India is totally import dependent. The Ministry of Commerce and Industry has been asked to provide a list of items where duty cuts can help with inflation.
Economists expect a 30-40 basis point reduction in consumer inflation through the measures announced by the government on Saturday.
Fiscal, monetary steps
The Reserve Bank of India raised the policy repo rate by 0.4 percentage point (40 basis points) to 4.4% earlier this month to combat inflation. The central bank's monetary policy committee (MPC) had also suggested a cut in fuel taxes to dampen inflation while suggesting the rate increase.
Sources added that last week's meeting acknowledged that monetary tightening by the RBI alone may not be enough to tame inflation, which is mainly due to supply-side issues. The rise in commodity and crude prices as well as supply disruptions because of the Russia-Ukraine conflict and the Covid-forced lockdown in China have caused record price increases in many countries.
"Inflation requires a focussed approach, with a mix of rate hike, duty cut and supply chain management," said the official cited above, adding that the PMO is closely monitoring inflationary trends.On Saturday, finance minister Nirmala Sitharaman said that the "PMO has specifically asked all arms of government to work with sensitivity to give relief to the common man."
The Centre is also assessing the fiscal impact of the relief measures and may borrow more if required.
No comments:
Post a Comment