Hindustan Times (Gurugram) - - News - Asit Ran­jan Mishra and Gireesh Chan­dra Prasad let­ters@hin­dus­tan­times.com ■

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.

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