WILL MEET ALL FISCAL TARGETS, JAITLEY SAYS AFTER REVIEW
A day after announcing measures to boost short-term capital inflows to rein in the rupee’s decline and curb a widening current account deficit, the government said on Saturday that it would stick to its fiscal deficit and capital spending targets in a signal of its continued commitment to financial prudence in a pre-election year.
Finance minister Arun Jaitley, after a review meeting of all departments under his ministry chaired by Prime Minister Narendra Modi, said the fiscal deficit would be contained at the targeted 3.3% of gross domestic product.
Rising oil prices, which have caused petrol and diesel prices at the pump to rise to records, and the declining rupee, which has depreciated around 13% against the dollar since January 1, making it Asia’s worst-performing currency, are putting finances under strain.
Rising oil prices and higher interest rates may mean that the fiscal deficit target will be missed, rating company Moody’s Investors Service said this month.
“Government is confident of meeting the 3.3% fiscal deficit target,” Jaitley said after the review meeting. “The government had spent 44% of the budgeted capital expenditure till 31 August and there will be no cuts in capex by the end of this year.”
Briefing reporters after the review meeting Jaitley said that after the presentations made by secretaries of the departments of economic affairs, revenue, expenditure and disinvestment, Prime Minister Modi expressed satisfaction on various aspects of the economy.
On Friday, Jaitley announced five measures aimed at increasing the inflow and stemming the outflow of dollars, including two that pertain to external currency borrowings: a review of the mandatory hedging conditions for external infrastructure loans and the permission for manufacturers to raise up to $50 million through such loans for a minimum period of a year (down from three previously).
They also include measures related to masala bonds, which are bonds sold oversea and denominated in rupees: an exemption for masala bonds issued in 2018-19 from the withholding tax (which will encourage more buyers to purchase them) and removal of the restriction on Indian banks on market making for such bonds including underwriting them. Economic affairs secretary Subhash Chandra Garg told CNBC-TV18 on Friday that the five measures will have an impact of around $8-10 billion.
The commitment to maintaining the budget targets in a year when state assembly polls are due in five states, leading up to next year’s general election, also in a way rules out any cut in excise duty on petroleum products, which have become more expensive in step with international crude oil prices. In a Facebook post in June, Jaitley said demands for huge cuts in fuel prices by opposition parties could lead India into a debt trap.
The government can ill-afford to lower the guard against fiscal deficit as a twin deficit problem including already high current account deficit could further dampen market confidence in the Indian economy.
Jaitley expressed confidence of the government meeting both direct tax, indirect tax and nontax revenue targets for 2018-19.
“On direct tax collections are concerned, we can now see the impact of all the anti-black money measures we have taken, of demonetisation and the goods and services tax (GST). There is a phenomenal increase in the number of people filing tax returns and the quantum of advance tax being paid. The Central Board of Direct Taxes (CBDT) is very clear that this year we will be able to collect in excess of the budgeted target,” said Jaitley.
Jaitley’s confidence of meeting gross tax revenue target of ₹22.7 trillion this fiscal, a 17% jump from what was collected in FY18, stems from strong growth in income tax receipts, the antievasion measures taken in the GST regime and expectations of higher consumption of consumer goods driven by GST rate cuts that came into force towards the end of July.
A 71% increase in income tax return filers before the 31 August deadline this year from a year ago hints at improved direct tax compliance. The GST cuts on items like air conditioners, small televisions and washing machines announced in July has marginally depressed the combined GST receipts of union and state governments in August to ₹93,960 crore compared to receipts in the previous month. The tax cuts were effective from 27 July.
Experts said that the optimism on meeting tax target was well-placed. “I am reasonably confident of the government meeting the total tax receipts target, combining direct and indirect taxes, as any slippage on indirect tax collection may be compensated by growth in direct taxes. We are now seeing the impact of demonetisation on direct taxes,” said M S Mani, partner, Deloitte India.
The government will, however, find it an uphill task to meet the disinvestment target after cancelling plans to sell national carrier Air India although Jaitley said the government will meet the ₹80,000 crore target for stake sales in state-owned enterprises.