India may go further to reduce tariffs against runaway inflation

In the wake of last week’s reduction in excise duty on petrol and diesel, the government is considering other short- to medium-term measures that could further reduce inflation, experts say. Measures under consideration include tariff reductions for essential items such as edible oil and other imported raw materials for industry.

A cut in the Agriculture Infrastructure Development Cess (AIDC) – imposed on some imports – is also under discussion.

The government is keen to help manage inflation so that fiscal austerity is kept to a minimum, as sharp rise in interest rates could derail economic recovery.

Officials from the finance ministry and the Prime Minister’s Office (PMO) discussed measures to curb prices last week, experts said.

“The goal is to reduce inflation by 60-70 basis points (short to medium term) and there could be another round of tariff reductions,” a senior official told ET.

Retail inflation reached an eight-year high of 7.79% in April. A base point is 0.01 percentage point.

Import duties on palm oil have already been lowered. The Center is now looking at reducing import duty on varieties like rice bran, canola, palm kernel and olive oil, they said.

The list has been requested from Commerce Min

The move would reduce dependence on palm oil, which was cut off due to an export ban imposed by Indonesia. Sanctions have been lifted and prices have cooled, but the government is keen to diversify the use of edible oils to reduce risk. India imports nine million tonnes of palm oil annually, accounting for about 40% of India’s total edible oil consumption. The supply of sunflower oil has been damaged as 90% of it has been imported from Ukraine, which Russia invaded on 24 February.

Further reduction of tariffs on essential raw materials on which India is fully dependent is also being considered. The Ministry of Commerce and Industry has been asked to provide a list of items where a reduction in tariffs could contribute to inflation.

Economists are expecting a 30-40 basis point reduction in consumer inflation through the measures announced by the government on Saturday.

Financial, financial measures

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 curb inflation. The Central Bank’s Monetary Policy Committee (MPC) has suggested a reduction in energy taxes to reduce inflation and suggested a rate hike.

Sources added that last week’s meeting acknowledged that monetary tightening by the RBI alone may not be enough to control inflation, mainly due to supply-side problems. Russia-Ukraine conflict and cowardly-forced lockdowns in China have led to record prices rise in many countries, along with rising commodity and crude prices as well as supply disruptions.

“Inflation requires a focused approach, which includes a mix of rate hikes, tariff cuts and supply chain management,” the official quoted above said, adding that the PMO was closely monitoring the inflation trend.

On Saturday, Finance Minister Nirmala Sitharaman said that “the PMO has specifically asked all arms of the government to work sensitively to bring relief to the common man.”

The center is also assessing the financial impact of the relief system and may borrow more if needed.

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