The government’s windfall tax, which raised $12.7 billion, narrowed the budget gap

India’s decision to levy windfall taxes on fuel exports last week will offset May’s consumption tax cut on domestic gasoline and diesel prices and help narrow the fiscal gap in the current fiscal year, economists said.

Taxes on the production of crude oil and the export of petrol, diesel and aviation fuel could net the government about 1 trillion rupees ($12.7 billion) if the levies continue through the remainder of the fiscal year ending in March, the government said Mumbai-based Kotak Mahindra Bank Ltd., economists Suvodeep Rakshit, Upasna Bhardwaj and Anurag Balajee wrote in their report.

India on Friday joined a growing number of nations that are tax energy companies to cope with rising costs. It also raised taxes on gold imports to control the growing current account gap and slow the rupee’s fall.

“All else being equal, the risk of fiscal slippage in fiscal 2022-23 now looks minimal,” Citigroup Inc. economists Samiran Chakraborty and Baqar Murtaza Zaidi wrote in their report Monday, noting revenue gains of $1.1 trillion to $1.2 trillion rupees from . Citi expects a budget deficit of 6.2% of gross domestic product for the current year versus a budget estimate of 6.4%.

Along with boosting central government finances, Friday’s measures will help mitigate the risk of over-budget borrowing, Kotak economists said. They also lowered their forecasts for the fiscal deficit for the fiscal year ended March to 6.5% of GDP from a previously estimated 6.8%.

Any additional government funding needs can be met from its treasury stocks, which totaled about Rs 4 trillion in June, and through issuance of short-term Treasury bills, said Gaura Sen Gupta, economist at IDFC FIRST Bank Ltd.

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