Arun Jaitley hints at belt tightening - Livemint

A file photo of finance minister Arun Jaitley. Photo: Pradeep Gaur/Mint

New Delhi: Finance minister Arun Jaitley on Sunday indicated that tough measures are needed to control India’s fiscal deficit ahead of his first budget scheduled to be presented in the first week of July.

The country must move towards an era of discipline to reduce the fiscal shortfall, contain inflation and improve economic growth, he wrote in a Facebook post titled From Celebration to Challenge.

“India must prepare itself for this. We must commit ourselves to this discipline so that in order to strengthen the Indian economy which can improve the quality of life of every Indian and pull out the deprived ones from the state of poverty,” Jaitley wrote. “Short term disciplining till we reverse the present trend will give us long term benefits.”

The central government’s fiscal deficit stood at 4.47% of gross domestic product in 2013-14, data released on Friday by the Controller General of Accounts showed, a tad lower than the 4.6% estimated in the provisional budget presented in February by then finance minister P. Chidambaram , mostly due to a Rs.22,447 crore cut in Plan expenditure.

The quality of fiscal consolidation will be key to fiscal tightening, according to D.K. Joshi , chief economist at credit rating agency Crisil Ltd . “It should not cut capital expenditure and instead look at bringing down wasteful expenditure,” Joshi said. “Cutting capital expenditure may impact growth in the short run.”

The statement by the finance minister seems to be a prelude to what one can expect in the budget, said Devendra Kumar Pant , chief economist and head of public finance at India Ratings and Research. “The government should look to rationalize expenditure, ensure that subsidies are given only to the needy, and look at ways to broaden the tax base,” he said, adding that falling global oil prices and a lower outgo on fuel subsidies should help the new government in keeping expenditure under control in the budget.

Jaitley said the Narendra Modi -led National Democratic Alliance, which came to power on the back of a historic mandate, inherits a sub-5% economic growth rate for two years in a row from the Congress-led United Progressive Alliance.

The economy grew at 4.7% in 2013-14, a little higher than 4.5% a year ago, on the back of a robust growth in farm output, Central Statistics Office data showed on Friday.

“The manufacturing sector has had an abysmal performance last year. The investment cycle has been disturbed,” Jaitley wrote in his post. “The negative sentiment has affected trade, hotels and transportation sectors, which are posed (poised) for a slower growth compared to last year.”

The finance minister said slowing economic growth coupled with high inflationary pressure poses a challenge.

India’s factory output shrunk 0.5% in March, the sixth time in the last fiscal year, while retail inflation accelerated to 8.59% in April, compared with 8.31% a month ago, on the back of rising food prices.

“India can ill-afford this trend. This has serious social consequences since slow down comes with a decade of jobless growth,” he wrote. “Reviving the growth momentum, containing inflation and altering the pattern of growth to gainful employment is today an overriding priority. Price stability and growth are inter-twined but may require a different strategy.”

The finance minister also hinted at coordinated approach between monetary and fiscal policy to better manage the inflationary and fiscal situation in the country.