Despite rising prices of fertilisers and crude oil putting pressure on the economy, India is “in a relatively stronger position than many other countries”, finance secretary T V Somanathan told CNBC TV18 in an exclusive interview.
“India is adversely less affected than others (countries) who are adversely more affected than us,” Somanathan said. He argued that India has at least escaped the global foodgrain crisis in the wake of the Ukraine-Russia war, owing to the large domestic production of wheat.
Saying that higher fertiliser prices pose a difficulty, Somanathan said it will have a big fiscal impact. “The government has already announced its fertiliser subsidy for the forthcoming season. There is going to be a substantial increase in the budget for fertiliser subsidies. It will certainly be above Rs 2 lakh crore,” he said.
On crude oil, he said that while prices are high, they haven’t climbed much in the last one month. “Over the last 30 days oil prices have been flat. Since prices were raised at the retail level, the trend line of crude prices has been largely flat. We have to see how the situation evolves. There are multiple variables affecting it, whether sanctions are tightened in Europe or it gets better if alternative sources open up in Iran or Venezuela,” he said.
Speaking about retail prices for auto fuels, which have not reduced despite a relative easing of crude oil prices, Somanathan said he was not sure of any significant under- or over-recovery for oil marketing companies after prices were raised.
With regard to fiscal policy, Somanathan said he doesn’t see any need for a change in fiscal policy at this point. On bringing down the excise duty, he stressed that it is quite possible to underestimate the secondary effects of some such decisions.
While a change in excise duty reduces retail prices, Somanathan said the corresponding lower tax collection and higher fiscal deficit have to be met somehow. “The funding has to come from somewhere. If you were to do a tax change, would it imply a reduction in government capital expenditure? Is that desirable? I’m not sure,” he said.
Fiscal situation challenging
The situation was challenging on the fiscal front last year, Somanathan said, adding that the government will work on maintaining growth and fiscal stability while the primary responsibility to manage inflation remained with the Reserve Bank of India (RBI). “The RBI has done what is necessary and they should continue to do what is needed. We are sticking broadly to the fiscal approach outlined in the budget,” Somanathan said.
This translates to enhanced capital expenditure as a stimulus to long-term growth prospects and the government sticking to its capital expenditure targets announced earlier, he said.
However, he said the economy is facing a lot of external stress. “We are in very adverse weather because of matters beyond our control. As part of the global economy, India is not immune to global challenges such as inflation and the exchange rate,” the finance secretary said.
However, there is a very high likelihood that tax numbers will be higher than estimated while the net fiscal position remains close to where India was during the time of the last budget, he said.