India set to present a‘ soothing’ budget
> Finance minister will seek to pacify voters still reeling from shock cash crunch
NEW DELHI: India’s Finance Minister Arun Jaitley will present the most challenging budget of his tenure tomorrow, as he seeks to appease voters still hurting from the radical monetary shock therapy that his government has administered.
The 2017/18 budget comes less than three months after Prime Minister Narendra Modi’s bold and risky gamble to outlaw high-value old currency bills, which has slammed the brakes on Asia’s third-largest economy and hit the poor particularly hard.
According to one survey, a third of people say their incomes have fallen, with nearly a tenth saying they are much worse off.
Judging how quickly the economy will recover is a tough.
A delay in the launch of a new national sales tax has added to the uncertainty. The Goods and Services tax (GST) is expected to improve tax compliance and check evasion, but the federal and state governments have yet to work out its details.
Officials say his fourth budget will likely offer modest tax concessions and ramp up spending to ease the pain caused by Modi’s decision in November to scrap 86% of the currency in circulation in a bid to purge the cash-reliant economy of illicit “black money” and expose untaxed wealth.
Paying for those giveaways may require Jaitley to slow the pace of fiscal tightening, officials told Reuters.
As well as buoying consumer spending, which contributes nearly 60% to gross domestic product, sops to voters could also shore up the fortunes of Modi’s nationalist party in five regional elections for which voting begins on Saturday.
Yet even though the cash crunch has inflicted the most pain on the poor, Modi has said in his campaign speeches it would punish the venal rich. Bad economics may be good politics, say some analysts.
Private economists expect Jaitley to plan a federal fiscal deficit of 3.3-3.4% of gross domestic product (GDP) for 2017/18. That is higher than the 3% pledged earlier but lower than 3.5% that the government has budgeted for the current year to the end of March.
In another development, India’s central bank said yesterday limits on ATM withdrawals will be partially lifted from tomorrow.
The Reserve Bank of India (RBI) capped cash withdrawals after Modi’s shock move triggered long queues outside banks and ATMs as hundreds of thousands of people thronged them to withdraw the initial daily limit of 2,000 rupees. The RBI later increased the amount to 4,500 rupees, and then to 10,000 rupees earlier this month as long lines and crowds at banks eased.
Limits placed on customers who have current accounts or overdraft accounts are withdrawn from tomorrow. However, restrictions on customers who have the more widely used savings accounts would continue for the present.
Customers with saving accounts are currently allowed to withdraw a maximum of 24,000 rupees a week. – Reuters, AFP