Centre mulls Rs 1Lakh crore extra borrowing to offset fuel-tax cut

New Delhi: India will probably borrow the entire Rs 1 lakh crore that the government will forgo as revenues due to a cut in petrol and diesel levies, according to people familiar with the matter.

Higher collections from the goods and services tax as well as personal income taxes will be neutralized by additional spending on food and fertilizer subsidies that the government is giving to the poor and farmers, said the people, who declined to be identified as the discussions are private.

The loss to the exchequer due to the recent excise duty cuts will therefore have to be borne through additional market borrowings, the people said.

The mounting debt load will probably spook India's bond market, where yields on benchmark 10-year notes have surged over the past month. The Reserve Bank of India, which is already managing a record borrowing plan, surprised investors with an off-cycle increase in interest rates this month.

Over the weekend, the Central government cut levies on pump prices of petrol and diesel, waived import tax on coking coal and increased payouts on fertilizers as well as cooking gas for the poor.

It lowered excise duty on diesel by Rs 6 a liter and gasoline by Rs 8, according to a tweet from Union Finance Minister Nirmala Sitharaman.

The revenue loss comes at a time when investors are staring at a record borrowing program from the government, surging price pressures as reflected in the wholesale and consumer price index, and the prospect of sharp interest rate increases by the central bank.