Rate hike not surprising, says FM Nirmala Sitharaman

She says RBI step won’t stymie govt’s capex plan, speaks about the necessity for revenue-neutral GST rate.

The rise in food and fertiliser subsidies in the current fiscal was somewhat accounted for when the Budget was being prepared, the minister said.

Finance minister Nirmala Sitharaman on Saturday asserted that the rising interest rate scenario is unlikely to derail the government’s plans for a record budgetary capex of Rs 7.5 trillion in FY23 to spur economic growth.

The Goods and Services Tax (GST) Council, the minister said, is unlikely to consider rate rationalisation in its next meeting, as a report of a group of ministers (GoM), led by Karnataka chief minister Basavaraj Bommai, on this issue is yet to be submitted. Once it’s presented, the report will be circulated among states for inputs, Sitharaman said. The government and the GoM are looking at how to, at least, “achieve the revenue-neutral (RNR) rate at which the GST was brought in”, she said.

The rise in food and fertiliser subsidies in the current fiscal was somewhat accounted for when the Budget was being prepared, the minister said. Global commodity prices, especially of crude oil, were on the rise and supply chains were disrupted (at the time of Budget preparation), although “we didn’t have any clue about the (Russia-Ukraine) war”, Sitharaman said.

She said countries seem to be following a particular action template to deal with the trade-off between recovery and inflation in the aftermath of the pandemic, and the latest hike in key policy rates has been a globally synchronised event. The Australian central bank raised the rates, followed by the Reserve Bank of India (RBI) and the US Federal Reserve, to curb inflationary pressure.

Speaking at an event organised by a media house, Sitharaman said the RBI’s repo rate hike of 40 basis points wasn’t surprising, as many were expecting it in the wake of the monetary policy committee’s (MPC’s) indication in April that it was time for it to act. However, since the move came in between the two scheduled meetings of the MPC (in April and in June), it may have surprised some. “So, the act wasn’t surprising but the timing may have been for some,” Sitharaman said.

The revenue neutral rate for GST was originally estimated at 15-15.5% and the tax debuted at a slightly higher rate. A series of rate cuts since the tax’s July 2017 launch, aimed at spurring consumption in a faltering economy, has brought the weighted average GST rate down to the current level of around 11.5%, necessitating a rate rejig. A reduction in the number of GST slabs — four at present — to two has been recommended by several experts, who think that it would make the tax simple and further reduce the cascading of taxes.

Source: https://www.financialexpress.com/economy/rate-hike-not-surprising-says-fm-nirmala-sitharaman/2516336/