 "Finance Minister Arun Jaitley with MoS for Finance Jayant Sinha and senior officials during a Pre-Budget Consultation meeting with leading economists, in New Delhi")
Speaking at a pre-Budget consultation meeting with economists, Jaitley said the fiscal deficit in April-November 2015-16 stood at 87 per cent of the Budget estimates vis-à-vis 98.9 per cent in the corresponding period of the previous financial year. According to a statement by the finance ministry, Jaitley said the gross tax revenues increased by 20.8 per cent during April-November 2015-16 over the corresponding period in the previous year, which was mainly led by a buoyant growth in indirect taxes including excise, customs duty and service tax collections. “Indian economy is on the path to recovery despite uncertainty and volatility in global economic situation.”
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He said India recorded a higher growth of 7.3 per cent in 2014-15 compared to 6.9 per cent growth in 2013-14, and 5.1 per cent in 2012-13, despite the slowdown witnessed in the world economy, showing resilience of the Indian economy.
In the meeting, the economists said while a slight deviation from the fiscal road map was necessary — given the additional spending burden because of one rank, one pension (OROP) and Pay Commission recommendations — the medium-term fiscal road map should be maintained. “We have conveyed that while a slight deviation is acceptable, there is a need to stick to the medium-term fiscal deficit road map,” said Mahendra Dev of the Indira Gandhi Institute of Development Research.
Representatives from various think tanks also spoke of the need to push for reforms in the agriculture sector to offset rural distress and the need to create more employment in the manufacturing sector.
The Fiscal Responsibility and Budget Management road map projects a fiscal deficit target of 3.9 per cent of gross domestic product (GDP) for 2015-16, 3.5 per cent for 2016-17 and three per cent for 2017-18. However, Chief Economic Advisor Arvind Subramanian said in his mid-year economic analysis there was a need to re-assess the targets for 2016-17, and maybe even beyond, due to an additional burden of nearly Rs 1 lakh crore from OROP payout and the Seventh Pay Commission recommendations in the upcoming Budget.
It is learnt that a majority of participants were in favour of letting go of the 3.5 per cent target for FY17, while a minority disagreed.
Among those in favour of more spending, some said the revenue deficit should be controlled and any increase should be only on capital account.
Government officials have maintained that while the fiscal deficit target for the current financial year would be met, the next year would pose a challenge. The economists present at the pre-Budget consultation also spoke of the need to alleviate rural distress and boost agriculture output.
As reported earlier, the Budget for 2016-17 could see a significant increase in allocations to marquee programmes such as the Pradhan Mantri Krishi Sinchai Yojana, Rashtriya Krishi Vikas Yojana and Pradhan Mantri Gram Sadak Yojana.
The economists also stressed on the need for the government to maintain public spending in infrastructure but at the same time work on reducing the subsidy burden.
It is learnt that there were also discussions centred around what to do with distressed banking assets. Suggestions included creating a bad bank, which would take over all the toxic assets or non-performing assets of Indian banks, similar to the US response to the 2008 crisis.
Following the collapse of Lehman Brothers, the US created a Troubled Asset relief Programme (TARP), which bought up under-valued assets cheap (in a crisis market) and sold them for a profit later. India has done something similar with Specified Undertaking of Unit Trust of India (SUUTI), and later with Satyam.
The general view among the economists was that something on the same lines should be done with banks troubled assets today.
Many other suggestions were made including introduction of a tax on dividends beyond Rs 10 crore or some higher limit and laying out an expedited road map for cutting income tax rates. Among the economists who attended the meeting were Nitin Desai, Rakesh Mohan, Abhijit Banerjee, Partha Mukhopadhyay from Centre for Policy Research, Sajjid Chenoy from JPMorgan, Pranjul Bhandari from HSBC and Ajit Ranade and Joshua Felman.
