Disruptions could trigger change in fiscal deficit targets: Jaitley
ON THE CARDS Performancelinked recapitalisation of PSU banks, specific policy for SMEs
SINGAPORE: Finance minister Arun Jaitley hinted on Friday that while there was no immediate threat to the fiscal deficit, future targets could be recalibrated.
“No pause (on fiscal consolidation) but challenges arising from structural reforms...could change the glide path,” he said,
Jaitley was addressing the annual Asia Pacific meeting organised by Morgan Stanley in Singapore.
A high level committee headed by former revenue secretary NK Singh on fiscal discipline had recommended a glide path to bring down the fiscal deficit and debt-to-GDP ratio to 2.5% and 38.7%, respectively, by the fiscal year 2022-23 from 3.5% and 49.4% in 2016-17.
According to Jaitley, the public sector was poised for a rejig and the government was considering policy to specifically address the credit needs of the small and medium enterprises—which are also key employers in the economy.
“Recapitalisation (of public sector banks) will be performance-linked. Announcement will be made soon. One or two instances of consolidation in SOE (state-owned enterprise) banks over the next 12 months. SOE banks to be encouraged to use capital to lend to MSMEs (micro, small and medium enterprises). Concerted policy to direct loans to MSME in the near future,” he was quoted as saying in a press release put out by Morgan Stanley.
Jaitley also identified the policy priorities of the Bhartiya Janata Party (BJP)-led National Democratic Alliance (NDA) government.
“Two areas of focus. One, to build rural India (housing, roads, electrification, sanitation, education and health) and two, to build national infrastructure”.
The NDA has already committed itself to a December 2018 deadline on electrifying every village in the country. The finance minister’s remarks suggest that this focus on developing human capital may be reflected in the upcoming budget due to be presented on 1 February—also the last full budget before the next general election due in 2019.
Similarly, the FM identified key focus areas for the NDA in its bid to further improve the country’s rankings in the ease of doing business index compiled by the World Bank.
This year, India rose 30 notches to the 100th place in the rankings.
According to Jaitley, the government is proposing to introduce legislation in the upcoming session of Parliament to amend the contract law to guarantee enforcement of contracts; after the roll out of the Goods and Services Tax this will be another signal from the NDA to its commitment to create an ecosystem driven by the rule of the law and one that is friendly to entrepreneurs.
Jaitley categorically stated that there was no central support to any farm loan waiver, reiterating the NDA’s commitment to adhere to its fiscal targets.
Addressing investors, the FM held out hope that private sector investment would revive. “Investments have been slow because of surplus capacity but a combination of a better global economy, bank recap and FDI (foreign direct investment) and public investments should help improve private capex (capital expenditure).”