Govt stares at fiscal wall on rural spending path

The government would have to walk a fiscal tightrope if it offers, as is widely believed, moresopsfortheruralandagriculturesector in the 2018-19 Budget.

Irrespective of what happens with the fiscal deficit target this year, top government officials are not in favour of a fiscal relaxation in 2018-19, Business

Standard has learnt. As such, the government has little room for enhanced spending.

The fiscal deficit target for next year, according to the Fiscal Responsibility and Budget Management (FRBM) Act, and the report by the FRBM committee, should be 3 per cent of gross domestic product (GDP). For 2017-18, the fiscal deficit target has been budgeted at 3.2 per cent of GDP.

On Monday, the ruling Bharatiya Janata Party retained Prime Minister Narendra Modi’s home state of Gujarat and wrested Himachal Pradesh from the Congress. However, the BJP’s reversals in rural Gujarat haspromptedmanypolicywatcherstopredict thattheBudgetwouldhaveincentivesforthe agriculturesectorandtheruraleconomy. Any such spending push would have to be done keeping in mind the strict fiscal deficit target as well as the end of the oil “honeymoon”, as crude prices touch $65 a barrel. Officials who have interacted with the Prime Minister’s Office said Modi was of the opinion that the deficit targets were sacrosanct, especially in lightofrecentconcernsraisedbyratingagencies Moody’s and Standard and Poor’s.

Finance Minister Arun Jaitley was also said to be in favour of maintaining the fiscal glide path next year. There was acceptance that due to the goods and services tax this year, there might be a slight deviation. Officials maintained that has to be corrected in 2018-19.

“Governments around the world are expectedtobefiscallydisciplinedandIexpect Indiatobenodifferent,” saidRathin Roy, member of the Economic AdvisoryCounciltothePrimeMinister. “I am hopefully confident that the upcoming 2018-19 Budget will sticktolaidoutfiscalcommitments.”

Aseniorgovernmentofficialand a member of the Fifteenth Finance Commission (FFC) told Business

StandardtheBudget- makerswould have to find a balance between delivering some pleasing announcements in the last full Budget before 2019 general elections and maintaining budgetary credibility. “There will be some constraints. Oil prices are a factor. We will also have to see how GST projections play out for next year. The government cannot shy away from its commitments on social and rural sector schemes, as well as capital spending,” the government official said.

TheFFCmemberpointedtoatermofreference specific to states in the commission’s mandate. One of the parameters which the FFC could lay down while recommending performance-based incentives for well-performingstateswasthe“controlorlackofitby states in incurring expenditure on populist measures.”