India Unveils Ambitious $12 Billion Plan to Tackle Inflationary Pressures

India Unveils Ambitious $12 Billion Plan to Tackle Inflationary Pressures

Ira Singh
27 Aug’23

In a bid to counter the growing concerns over rising inflation, the government has announced a comprehensive plan that aims to allocate a staggering $12 billion towards addressing the current inflationary pressures gripping the nation’s economy. The move comes as the country grapples with soaring prices across various sectors, causing concerns for both policymakers and citizens alike.

Indian officials are contemplating reallocating as much as $12 billion (1 trillion rupees) from ministry budgets to curb food and fuel prices without compromising the government deficit objective, according to a Bloomberg report quoting sources.

Prime Minister Narendra Modi is expected to make a decision in the upcoming weeks regarding potential measures to reduce petrol costs and ease import levies on essential commodities such as cooking oil and wheat. These steps come as a response to the persistent challenge of inflation and are aimed at providing relief to consumers.

This potential reallocation of funds follows a similar move made last year when a $26-billion plan was announced to mitigate the impact of rising prices on the public. The consideration of such measures aligns with the recent decision by the central bank to maintain stable borrowing charges, which are among the highest in Asia. The Reserve Bank of India underscored the potential risks posed by escalating prices, emphasizing the need to address inflationary pressures.

Following Modi’s address this week, officials are under pressure to tackle inflation, which hit a 15-month high last month. The price of onions and tomatoes has brought down governments in India. While Modi has just a few months to lower costs for voters, he cannot afford to blow up the budget deficit, which is being keenly monitored by foreign investors.

Although budgetary reallocations are not unheard of in India, the combination of higher dividends from the central bank and consistent tax collections, driven by the country’s robust economic growth, provides room for potential adjustments. Estimates suggest that approximately a trillion rupees, equivalent to about 2 percent of the budget for the fiscal year through March 2024, could be freed up for such purposes.

This fiscal flexibility could also be harnessed to extend lower-cost loans and affordable housing options for those in need. The intention is to achieve these objectives while adhering to the fiscal discipline of maintaining the targeted budget deficit of 5.9 percent of GDP for the current fiscal year, which commenced on April 1.