THE RETURN OF ARUN JAITLEY
Finance minister Arun Jaitley is back at work after his kidney transplant. And his office has been redone keeping in mind his medical condition so that visitors can maintain a safe distance.
Jaitley’s office will host a number of meetings in the next few days, one of them with global ratings agency Standard & Poor’s on August 30 that will, in all probability, discuss the weakening of the rupee and the current account deficit (CAD)—both on shaky ground, adversely impacting India’s rating by the agency. Incidentally, S&P may come out with its ratings close to the general elections in 2019, and it remains to be seen how Jaitley will convince their team.
Another major item on the FM’s to-do list will be to take a decision on whether or not the government wants to instruct the Reserve Bank of India to exempt the power sector from its notice that scrapped all the old restructuring schemes and stated that a company will be termed a defaulter if it falls even a day behind in its repayment schedule. A recent Allahabad High Court ruling on the circular upheld the RBI’s norms and said the government could use a special dispensation to give the central bank directions.
Jaitley returns at a difficult time when the economy is facing various macro challenges. The CAD is under strain, with oil prices rising beyond comfort level and imports becoming more expensive. A State Bank of India report states that the CAD could reach 2.8 per cent of the GDP in FY19. In fiscal 2017-18, the CAD was 1.9 per cent. D.K. Joshi, chief economist at CRISIL, says: “Fiscal is a choice that the government has to make. If the government keeps the fiscal deficit under check, it sends out a responsible signal to the investor community. Also, amongst all the other variables such as the CAD and the rupee, fiscal deficit is the only indicator which is under the control of the government.”
Inflation is showing a worrying trend too. And considering the government is the biggest borrower, high interest rates will add to the borrowing costs of the government in a year when non-tax revenues haven’t been buoyant. In a pre-election year, there is pressure to increase expenditure in the form of farm loan waivers, and a RBI report states that most states will breach their fiscal deficit target, with deficits going up to 3.1 per cent. Jaitley will have to ask the BJP-run states not to announce too many sops, and that may be tough.