Indian government is softening the inflation blow with export bans, duty cuts and subsidies

• The CPI inflation touched an eight-year high in April, at 7.79%.
• The rising inflation will not come down till the fourth quarter of this fiscal year, as per media reports.
• In order to curb the situation, the government of India has taken several measures.

It’s not just India’s central bank that’s worried about inflation and raising interest rates to bring it down. The government of India too took five major decisions to slash down food and fuel inflation - which has become a global concern.

The retail inflation surged to an eight-year high of 7.79% in April. Experts believe that it could remain high through this fiscal year.

Here is what the government did in the last two weeks to tame it.

Duty-free imports of crude soy and sunflower oil

The central government, on May 24, permitted the import of 20 lakh tonnes of crude soy and sunflower oil per annum, for two years, at zero customs duty. It also cut basic customs duty on crude palm oil - known as poor man’s oil - to 10% till September.

Cooking oil prices have been going up for the last few months after the Russia-Ukraine war as both of them are major exporters. India imports more than half of its cooking oil requirements and this will ease the burden on Indian household budgets.

Limiting sugar exports

The government has also put a cap on the sugar exports and included it under the ‘restricted category’ with effect from June 1. The motive behind this move is to increase sugar availability in the domestic market, and hence stall any price increases.

“The government has decided to allow export of sugar up to 100 LMT (lakh metric tonnes) with a view to maintain the domestic availability and price stability during the sugar season 2021-22 (October-September),” said the Directorate General of Foreign Trade in a statement.

India is the second largest exporter of sugar in the world, after Brazil.

Banning the export of wheat

On May 14, India shocked the world by banning wheat exports. Exports have been fuelling demand and increased the wholesale and retail prices of wheat and atta which is ground flour. This move will bring stability to wheat prices and insulate it against international price movements.

Hours after the ban, the government clarified that it doesn’t apply on the commitments already made to vulnerable and needy countries.

In April last year, India exported 240,000 metric tonnes which rose to over 1.3 million metric tonnes in April 2022. This growth in exports can have a detrimental effect on food price inflation, according to Commerce and Industry Minister Piyush Goyal.

"Therefore, we thought the curbs would be good, considering the food security of India and, at the same time, to ensure the orderly distribution of grain that we are exporting,” he told Business Today.

Excise duty cuts on petrol and diesel

On May 21, the Finance Minister Nirmala Sitharaman reduced central excise duty on petrol by ₹8 per litre and by ₹6 on diesel.This will reduce the price of petrol by ₹9.5 per litre and diesel by ₹7.

“It will have a revenue implication of around ₹1 lakh crore/year for the government,” she said in a statement.

States like Kerala, Rajasthan, Maharashtra, Odisha and many more also reduced the value added tax (VAT) on the fuel prices following the central government announcement. This will have a wide effect on the prices of food and all other goods due to lower transportation costs - and make a significant impact on CPI.

Doubling fertilizer subsidies

On May 21, Sitharaman said the government will give an additional ₹1.10 lakh crore to the farmers as fertilizer subsidies.

“Despite rising fertilizer prices globally, we have protected our farmers from such price hikes. In addition to the fertilizer subsidy of ₹ 1.05 lakh crore in the budget, an additional amount of ₹ 1.10 lakh crore is being provided to further cushion our farmers,” she said.

This reduction will lower costs of farmers and ensure that the food price inflation of essential items like cereals, pulses and vegetables will remain in check for the next few months.

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