Faced with divided views on public spending, finance minister Arun Jaitley on Saturday said he was actively considering the pros and cons of higher public spending and its impact on the fiscal maths.
Jaitley said the final decision on the fiscal deficit target would be spelled out in the budget based on the resources, growth potential and tax buoyancy. Jaitley’s comments came in the wake of RBI governor Raghuram Rajan’s statement on Friday warning the government over increased borrowings to spur spending for higher economic growth risking macroeconomic stability.
“I can tell you I have been consulting all shades of opinion. This is the first time that I have come across people holding sharply divided views and each one has a strong argument in his favour. There is an argument being given that in the current economic situation public investment holds the key,” Jaitley said.
“Then there is another argument, and the alternate argument is also equally important with regard to credibility of government. One year you deviated from target, will you do it again and particularly if oil prices are one-third of what they were? If you still can’t meet the target, when will you do that? And, therefore, both the arguments have a way,” he added.
Jaitley shared that his ministry was also weighing whether in a fast moving global situation it was necessary to fix a target beforehand.
“Of course, the government has the benefit of these three views. Predominantly, industry is of the view that you must spend more, the economists’ view is sharply divided,” he said. “I think all these inputs will go into determining the policy of the government.”
Almost a month before the Union budget, Jaitley indicated his speech on February 29 would pitch for structural reforms and not resort to “sheer populism”. Calling for strong economic fundamentals, Jaitley said the country needed to focus on better infrastructure, irrigation and farm productivity.
“We probably have potential to have a growth that is higher than what we have achieved. This 7-7.5% is not our optimum range. The Indian normal is 8-9% category. And it is only when you grow at that pace, you can get rid of poverty,” he said.
Highlighting the positives for India amid a slump in oil and commodity prices leading to a global slowdown, Jaitley said the situation “suits us” as the country is a net buyer of these items.
“What we have to do is to put our house in order. I think the first important thing that we have to do is to carry on structural reforms,” he said about how India could take advantage of the global situation.
Talking at an event, Jaitley pushed for a shift in focus towards infrastructure, irrigation, agricultural productivity and manufacturing.
“At the end of the day, what is it that you are asking for is to get that cutting edge that you must grow at 1-1.5% faster than what you are doing today. I think with all these changes, and hopefully, in future rain gods being kinder to us than in the last two years, it is not very difficult or impossible target for India to achieve,” Jaitley said.
Hopeful of passing GST
Jaitley expressed hope the Congress “will see reason” and support the passage of the long-pending Goods and Services Tax (GST) Bill. “It (GST) is the important reform of the UPA. If I have to credit the authorship of it, I have to give credit to them. Now, if the author turns against his own script, what do I make?” he said.
The finance minister maintained he had reached out to the Congress over the GST issue and hoped it would see “the rationale” behind passing the bill. He pointed out that UPA allies such as the RJD, NCP and JD-U were openly supporting the legislation.
Jaitley clarified the government was not against subsidies, but maintained they should be meant for the needy and not the wealthy. His remarks came a day after Prime Minister Narendra Modi spoke of rationalising and targeting of such benefits. “The Prime Minister had a valid point and the valid point is at the end of the day, the government per se is not against the concept of subsidies,” Jaitley said.
“If you look at the whole structure of the Indian economy, its agriculture sector, particularly in the last two years due to the poor monsoon, has been stressed. Therefore, you need to put funds in that particular sector. Therefore, there would be targeted subsidy,” he said.