Oil price rise to hit economy, looking at options to mitigate impact: Finance minister Nirmala Sitharaman

Sitharaman has subsequently made it clear that the government has the ‘sovereign right’ to tax profits made from virtual digital asset transactions.

Finance minister Nirmala Sitharaman on Tuesday expressed concern over rising global crude oil prices and indicated that the government is weighing the option of tapping alternative oil sources to keep domestic supplies steady.

Brent crude oil prices on Tuesday exceeded $127 a barrel in intraday trade, as the possibility of American sanctions against Russian oil supplies stoked fresh concerns over supply.

Speaking at an interactive session organised by BJP’s Karnataka unit, the minister said: “It (rising crude prices) will have a bearing. We have made some provisions for it in the Budget. But that provision is only based on some average (price) prevailing earlier but now (the price) is beyond that. So, we will have to see how we can work it out.

 “How much we are going to be prepared to take it as a challenge and mitigate the impact is something which we will have see as we go (along),” she added.

Since India imports over 85% of its crude oil requirements, she said the government is closely monitoring the situation to see if there are alternative sources from where crude oil could be bought. But at the same time, there is hardly going to be any relief from any specific market on the price front. Over a half of India’s $7-billion imports from Russia until December this fiscal comprised petroleum products.

Asked about the need to bring petrol and diesel within the ambit of the goods and services tax (GST), she said the proposal is already before the GST Council.

Digital currency

Speaking at the India Global Forum’s annual summit in Bengaluru on Tuesday, Sitharaman said the government sees ‘clear advantages’ of a digital currency rolled out by the central bank and that the move to launch a digital rupee is a ‘conscious call’ taken after wide-scale consultations with the Reserve Bank of India (RBI).

“…we would like them (RBI) to design it the way they would like to do it, but this year we expect the currency to come out from the central bank itself,” Sitharaman said, while responding to a question on the digital rupee.

The government, she said, will soon make an enabling policy to facilitate the setting up of digital banking units in the country. It’s looking for entities that will be interested in setting up such banks.

In the Budget for FY23, Sitharaman had declared that the RBI would be launching a digital currency. She also announced the establishment of 75 digital banking units by commercial banks in 75 districts.

Asked if cryptocurrencies would be regulated, the minister said any decision on whether to regulate or ban them will be made only after wide-scale consultations.

“After the consultation process gets over, the (finance) ministry would probably sit and mull over it, which is required because we need the executive to be sure that we are not crossing any legal requirements, post which we will be coming out with what’s our position on it,” Sitharaman said.

Responding to another question as to whether she sees a future for cryptos in India, the minister said, “Many Indians have seen a lot of future in it, and therefore I see a possibility for revenue in it.”

The latest Budget has proposed to tax any income from the transfer of virtual digital assets at 30%. The loss from the sale of these assets cannot be set off against any other income and a 1% TDS (tax deducted at source) will also be levied on payments made on the transfer of digital assets. This move led to speculations that the government might legalise cryptocurrencies, despite reservations by the central bank.

However, the Sitharaman has subsequently made it clear that the government has the ‘sovereign right’ to tax profits made from virtual digital asset transactions and that the Budget announcement has neither legalised cryptocurrencies nor prohibited them.

On Tuesday, explaining the rationale behind launching a digital currency driven by the central bank, the minister said, “…in this day and age, bulk payments are happening between countries, large transactions are happening between institutions and large transactions are also taking place between central banks themselves of each country. All these are better enabled with the digital currency.”

Sitharaman said private consumption has picked up significantly, having remained subdued in the last fiscal due to the pandemic. The share of private consumption, the main pillar of the economy, jumped to 60.7% in the third quarter, the highest level in the new GDP series with 2011-12 as the base year, compared with barely 55% in the last quarter of FY20 that immediately preceded the pandemic.

The government’s first demand-side focus immediately after the pandemic was to ensure the poor and the vulnerable sections of society have access to free grains distributed by it.