Budget 2022-23 was launched in February, which came with lots of hopes, including boosting employment, strengthening infrastructure, and a lot more. But the Russia-Ukraine war could impact India’s spending plans.
As per the reports, India is likely to be affected by the Russia-Ukraine war following a surge in global prices of commodities. The Indian govt has to upend spending plans and derail its pandemic recovery, according to the analysts. If the conflict lasts, India, which imports almost 85% of oil, is likely to see fiscal, trade, and account deficits swelled by a surge in crude oil prices to the highest in more than a decade, which will also lead to fuel inflation.
The February budget 2022-23 was based on an average oil price of $75 to $80 for a fiscal year starting from April 1, but Brent soared to nearly $140 on Monday, the highest in the last decade.
A senior govt official says an increase in the price of crude oil will impact the other commodities. Every $10 increase in oil barrel price inflates India’s consumer price index-based inflation by 20 to 25 basis points, according to DBS Bank. It widens the current account gap by 0.3% of GDP and poses a downside risk of 15 basis points to growth.
According to the government, retail fuel prices could hike up to 10% or more, starting from this week.
Besides this, the government was also forced to revamp the plans for an $8-billion IPO of state-run Life Insurance Corporation by the end of March, which is likely to further dent the government’s financial position.
The government officials said the fiscal deficit could slip by 20-30 basis points from a target of 6.9% of GDP in the current fiscal year ending in March, if LIC fails to list.
The government is reworking some key budget points, and the spending plans for next year could look different from previously proposed budgets, officials added.
