Jaitley has his work cut out to revive growth, tackle inflation
May 27 2014
Biggest challenge for him to keep fiscal deficit in check
After rating agencies threatened to downgrade India to junk status, former finance minister P Chidambaram cut down on spending and postponed some of the subsidies to the current financial year to bring down the fiscal deficit to 4.6 per cent.
Jailtey’s big challenge will be to see that fiscal deficit remains within target while arranging for huge subsidy left behind by the UPA II. The new finance minister will need to curb subsidy, especially in diesel where partial de-regulation was allowed by the UPA.
Any slippage in fiscal deficit will spark negative reaction from rating agencies and markets.
In this context the budget, which is expected to be presented in July, will be the first major challenge for the new finance minister.
The budget will need to rekindle the animal spirit in the business community lift investors confidence and kick start the investment cycle to boost growth.
India’s economy is in tatters after growing sub-five per cent for two straight years, 2012-13 and 2013-14. The manufacturing sector has virtually collapsed contracting by 0.2 per cent in 2013-14, the first time since 1991-92.
While general sentiment in the economy has been improving in the run-up to the election, Jailtey will need to keep up the momentum and lift the economy.
For this the government will need to improve the ease of doing business and remove regulatory hurdles which have been hampering setting up new projects. The government will equally need to resolve iron ore and coal mining issues.
In the long term, the finance minister will have to bring states on board to push the ambitious goods and services tax (GST). GST would help to stabilise revenues, while potentially improving the country's growth prospects, by promoting inter-state transactions, and general efficiency of the economy.
Finance minister will need to work with the opposition to push reforms, especially in the banking, insurance and pension sectors. As a low hanging
Fruit, finance minister will need to implement the direct tax code (DTC) for which a lot of work has been done.