Public investment set to get a legup in the budget
Govt eyes aggressive fiscal push following slump in GDP growth
NEW DELHI: The government is considering a more aggressive fiscal push in next year’s Union budget, likely to be presented on February 1, after economic growth slumped to a three-year low in the quarter ended June 30.
The finance ministry has started the budget-making exercise for the fiscal year starting April 1 with the release of the budget circular containing the timelines for submission of information by various departments. The ministries and departments have to submit tentative budget estimates for FY2019 by September 30.
“There is now hardly any doubt that the current slowdown goes beyond transitory shocks like demonetisation or goods and services tax (GST). With hardly any hope for a quick revival in private investment, the government now has to take a decisive lead to stimulate the economy by significantly increasing allocation for public investment projects,” a finance ministry official said on condition of anonymity.
The realisation that the economy needs a stronger push comes after growth stuttered to 5.7% in the fiscal first quarter. Reviving economic growth and creating more jobs, promises that the ruling Bharatiya Janata Party made to come to power in 2014, is crucial as the party seeks re-election in 2019.
The finance ministry official cited earlier, however, said that the aggressive spending does not automatically mean that the government will breach the 3% fiscal deficit target set for 2018-19. “Much will depend on tax collection trend for the rest of the year, especially in GST,” he added.
The government is yet to take a final call on implementation of the NK Singh committee on fiscal discipline that has recommended a glide path to bring down fiscal deficit and debt-togdp ratio to 2.5% and 38.7%, respectively, by 2022-23 from 3.5% and 49.4% in 2016-17.
Chief economic adviser in the finance ministry Arvind Subramanian in his second volume of the Economic Survey 2016-17 released in August warned that the economy is facing demand deflation and overcoming the near-term demand shortfall will be critical by making important policy choices such as “magnitude and composition of fiscal consolidation in the context of commitments made”.
Finance minister Arun Jaitley, after the first-quarter GDP data was released, had said it was a matter of concern that GDP growth in the first quarter had slipped. “It throws up a challenge for the economy. In coming quarters we require—both in terms of policy and investments—to work more to improve upon this figure,” he added.
State Bank of India in a report published on September 8 said any cutback in expenditure at this point will be majorly deflationary when private investment is unlikely to be forthcoming unless non-performing assets resolution starts happening by March quarter of 2017-18. “There is no harm if the government spends the proceeds arising out of GST (goods and services tax) on pushing capital expenditure. However, with uncertainty regarding (the impact of) GST implementation and monetary policy support to growth not forthcoming it will not be prudent on the part of government to reduce spending as other growth drivers are missing,” it added.
Globally, also there is growing clamour for setting aside austerity measures and pushing for growth. The United Nations Conference on Trade and Development (UNCTAD) in its latest Trade and Development Report 2017 titled Beyond Austerity: Towards a Global New Deal called for globally coordinated strategy of expansion led by increased public expenditures to crowd in private investment.
UNCTAD in the report said the Indian economy faces “serious downside risks” as the government’s demonetisation drive, implementation of the GST and corporate deleveraging could accelerate a slowdown and make recovery difficult.
THE MINISTRIES AND DEPARTMENTS HAVE TO SUBMIT TENTATIVE BUDGET ESTIMATES FOR FY2019 BY SEPT 30