The government appears to be setting its finances in order as part of the pre-budget exercise that is expected to kick off soon. There has been a rollout of budget management measures that are key to finance minister Arun Jaitley presenting his last budget on February 1 before prime minister Narendra Modi’s term ends. The first key measure has been to slash government borrowing by Rs 70,000 crore this fiscal. Ordinarily, finance ministers only curse their stars as they struggle to put together their numbers. But the decision to trim government borrowings to Rs 5.35 lakh crore against the budget estimate of Rs 6.05 lakh crore is significant for more than one reason. That this is being done without affecting social development expenses on flagship programmes like Ayushman Bharat or pulling back on plans for raising minimum support prices (MSP) for farmers is important. The biggest message seems to be that the government will not deviate from the previously set path of fiscal consolidation notwithstanding the tough times resulting from the huge spike in crude prices, slide in rupee value and the fallout from the US-China trade wars.
Secondly, on the issue of sticking to 3.3 per cent fiscal deficit initially mentioned in budget estimates it would be interesting to learn how the government plans to achieve these difficult economic targets. Going by what finance secretary Subhash Chandra Garg says, the government will bank on revenues beyond target from the small savings schemes. Besides that, the government is bullish on meeting the disinvestments targets for the fiscal at Rs 80,000 crore. However, there is an element of uncertainty on this front given that markets are roiled owing to the tight liquidity situation and since non-banking finance companies (NBFCs) like IL&FS have landed in a mess. Still, if the government were to manage its macro-economic variants and achieve 7.5-8 per cent growth, this will lay a firm foundation for the next phase of high growth trajectory.
One interpretation of the government’s assertiveness on the economic front could be rooted in brazenly allowing retail prices of petrol and diesel go northwards in sync with the crude oil movement in global markets. Meanwhile, stabilisation in revenue realisation from the goods and services tax (GST) – though some states have begun to feel the pinch – is a positive. That apart, over 52 per cent increase in filing of income tax returns with concomitant increase in direct taxes mop up could also have contributed to the confidence though finance ministry officials do not concede that this is so.
Only recently, the finance ministry had hinted at the possible overshooting of the fiscal deficit due to tight government financial position and stress in systemic liquidity. The opposition argument that the economy is not firing on all cylinders may be partially true. One cannot possibly expect much support from export markets that have posed new challenges for our merchandise and services exporters. There is hope that agriculture will chip in with a larger output on the growth front. But, that may not necessarily translate into higher revenues for the government. Politically, the numbers to be put out by finance minister Jaitley will mean a lot for the ruling NDA that is bound to face brickbats for its fuel pricing policy, unhindered slide in rupee and India’s limited options in managing the external trade front.