NEW DELHI: The government on Monday said after cut in excise duties on petrol and diesel, rationalising non-capex expenditure has become critical. Centre’s revenue took a hit after slashing of duties on fuel, giving an upside risk to the gross fiscal deficit, it said in its ‘Monthly Economic Review’ report.
“Increase in the fiscal deficit may causes the current account deficit to widen, compounding the effect of costlier imports, and weaken the value of the rupee, thereby further aggravating external imbalances, creating the risk (admittedly low, at this time) of a cycle of wider deficits and a weaker currency,” it said. It further added that rationalising non-capex expenditure is just not important for protecting growth-supportive capex but also for avoiding fiscal slippages.
It is also noted that the depreciation risk to rupee is there in view of outflow of foreign portfolio investors (FPIs). As per the report, the recent surge in inflation in EMEs is mainly on due to supply-side shock arising from the Russian-Ukraine conflict. “In advanced economies, liberal stabilisation policies therein have impacted the prices of the entire consumption basket. Whereas, in emerging market economies imported inflation is in respect of only a few commodities on which these economies are net import dependent,” the report said.
However with time, imported inflation in emerging economies may spread to other commodities via interlinkages in the consumption basket, making retail inflation more broad-based, the government observed. In addition, the government hopes that the international crude prices may temper on the back of weakening of global growth and the increase in supply by OPEC.