Govt may not upset revenue, spending math in attempt to prop up economy

Finance ministry sources say big decisions are unlikely to be taken outside of the annual budget

The government is working on measures that will create more jobs and help raise income levels in a slowing economy, but no step that will impact revenue or the spending balance will be taken outside of the annual budget, two finance ministry officials said.

India’s economy grew at 5.7% in the June quarter, down from 6.1% in the three months before.(AFP file photo)

Measures under consideration include those meant to make doing business easier and to attract fresh investments. Structural changes in the government’s fiscal discipline will not be taken without Parliament’s sanction, one of the officials said on condition of anonymity.

“We keep making assessments about trends in the economy. Our revenue receipts as well as spending -- which has been frontloaded by way of advancing budget announcement — are as expected. Any measures leading to fiscal expansion will only come from budget,” said the official quoted above. Budget 2017-18 was announced on February 1, instead of the earlier tradition of being unveiled on the last day of the month, a change that has led to better utilisation of funds in the economy, said the person.

Finance minister Arun Jaitley said at a conference last Thursday that “appropriate actions” will be taken at the “right time” to revive the slowing economic growth, raising hopes of a massive expansion in public spending. Economic growth in the June quarter slowed to 5.7%, compared to 6.1% in the quarter before.

The second official, who also briefed on the condition of not being named, said the government’s commitment to respond adequately to challenges in the economy does not necessarily mean what is under consideration is an immediate deviation from the fiscal consolidation plan without analysing implications.

The finance ministry, however, is very keen for the RBI to further ease the monetary policy that will bring down cost of capital to businesses and improve competitiveness in the export market. “There is scope for monetary easing given inflation projections,” said a third official, who also did not wish to be named.

In the second volume of the Economic Survey released on August 11, the ministry said retail inflation at the end of March 2018 will remain within RBI’s medium term target of 4%.

The central bank on August 2 cut the repo rate at which it infuses liquidity in the banking system to 6%, the lowest since November 2010, from 6.25%, citing a sharp fall in consumer price inflation and the need to boost investment demand in the economy.

“This rate reduction should have ideally prompted the banks to lower their lending rates. However, given the problem of non-performing assets (NPAs), banks would find it difficult to fully pass on the benefits to the borrowers,” said consultancy firm EY in a note on economy on Friday.