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Govt seeks to retain goodwill among beneficiaries of welfare schemes

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NEW DELHI: Prompted by the sharp increase in the April retail and wholesale inflation numbers, the government on Saturday unveiled a series of measures, aimed at ensuring that demand and economic activity are not hit hard, while also seeking to retain the goodwill among beneficiaries of government schemes.
From last weekend’s wheat export ban to the latest set of measures, including those on fuel, cooking gas, iron and steel, and plastics, the Centre has sought to blunt the impact of global commodity prices on the Indian economy. There are indications that edible oil prices may soften in the coming weeks after Indonesia decided to review the export ban on palm oil.
“During these challenging international conditions, PM Modi-led government has provided a major relief to the common man by reducing excise duty on petrol and diesel and offering a subsidy of Rs 200 on cooking gas cylinders. Steps have been taken in other sectors too so that prices come down,” tweeted home minister Amit Shah, who is part of a ministerial panel keeping a watch on the price situation.

With an increase in prices of everyday products, and the impact of fuel price rise impacting several sectors, the government had for some time felt the need to tame inflation as it had touched the highest level during the Modi government’s tenure. Although it had remained hopeful that people would appreciate that triggers for inflation — Russia’s invasion of Ukraine, disruption of supply chain and unusually hot weather — were beyond the its control, top functionaries felt that the Centre needed to be seen as acting to alleviate the distress.
After all, government sources said, higher inflation reduced the cash available with households, smothering demand and slowing down economic activity and growth.
There was apprehension that the goodwill among beneficiaries of popular welfare schemes would get eroded as cooking gas cylinders cost over Rs 1,000 in several parts of the country and petrol prices had shot back to over Rs 100 a litre.
A sharp increase in tax revenues, including record GST receipts, provided the government enough headroom to move ahead and unveil the relief on petrol and diesel. Besides, the danger of inflation getting entrenched and hurting growth and the recovery underway, the desire to nip the opposition’s campaign over price rise was another driver.
The moves announced on Saturday appear to be in tandem with the 40 basis points rise in interest rates the RBI recently effected in an off cycle move after the recent inflation data pointed to emerging price pressures. As part of the overall inflation management strategy, the government has now moved with its fiscal armour to complement the steps taken by the central bank.
Experts said Saturday’s measures announced by finance minister Nirmala Sitharaman will calm prices pressures to some extent for now. Globally inflation has emerged as a major policy headache and has dragged growth down.
“The reduction in excise duty will help cool the inflation trajectory going ahead and complement monetary policy. We project the May 2022 CPI inflation at between 6.5%-7%. The fiscal cost, while material, can be absorbed by higher than budgeted revenues through other taxes. We estimate the tax revenues of the government to surpass the budget estimates by at least Rs 1.3 trillion even after excise reduction,” said Aditi Nayar, chief economist at ratings agency ICRA.

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