Govt now asks departments to fast-track budgeted spend; stimulus can wait

A day before Prime Minister (PM) Narendra Modi’s much-awaited announcement, to be telecast live, a top government source indicated that the focus was on fast-tracking the budgeted expenditure of ministries and departments rather than on a stimulus package to lift the economy. 

The PM’s speech on Monday at Bharatiya Janata Party’s (BJP’s) national executive meeting would mostly be around social schemes, the source said. With this meeting, the year-long birth centenary celebrations of BJP ideologue Deendayal Upadhyaya would come to an end.

Pointing out that several ministries and departments have been sluggish in spending their budgetary allocation, the source said the government was making an all-out effort to plug the gap in public expenditure. He listed the ministries of railways, roads and health among the slow spenders. “There’s money already available, let them spend that first,” he said. 

Ever since gross domestic product (GDP) growth fell to 5.7 per cent in the first quarter of 2017-18, making it the lowest growth in the National Democratic Alliance regime, the government has been sending feelers to industry that measures were being discussed to revive the economy. 

Several ministers and top bureaucrats met last week to deliberate on the way forward, leaving it to the PM to take a final call. 

“Soon you will hear from us,” Finance Minister Arun Jaitley said at an investor summit organised by JP Morgan. Even as there was no confirmation, soon the talk revolved around a mega stimulus package to the tune of Rs 40,000-50,000 crore that the government might announce and, that as a result, the fiscal deficit target of 3.2 per cent of GDP this financial year could be breached. 

Expectation has been building up that the PM might make the stimulus package announcement on Monday. Last Friday, the markets saw the worst fall in the past 10 months, partly due to the narrative on the government’s stimulus spend, experts said.

Now, however, the government is clearly toning it down. When asked about the likelihood of the government missing the fiscal deficit target of 3.2 per cent of GDP this year, another official said that a call could possibly be taken around December, if the government takes steps to strengthen bank balance sheets by recapitalising public sector banks. “These are complex issues, and decisions cannot be taken at any given time in an arbitrary manner.”  

Elaborating on issues in various sectors of the economy, the official said while housing required a push, the policy was already in place (affordable housing) and funds, too, were available. Stating that lack of job creation was one of the challenges of this government, he said the skill development ministry has been slow in the apprenticeship programme for instance. “We need to know why this happened and take corrective action.” 

Similarly, the government is mindful of the problems that small and medium enterprises are facing in getting credit under the goods and services tax, he said. “We are trying to fix that.” 

The next Union Budget on February 1, 2018, is likely to address some of the issues impeding economic growth. But officials said the focus of the Budget would evolve in the next two months, and political messaging would be clear only in January.

Economy in a nutshell
  • GDP growth fell to 5.7% in Q1 of 2017-18, the lowest in three years
  • Ministries and departments held back-to-back meetings to look for ways to revive economy
  • Talk of big-bang stimulus package and large-scale central spending surfaced
  • Debate on breaching fiscal deficit target of 3.2% of GDP in FY18 gained momentum
  • Centre’s stimulus spending plan, besides global factors, triggered a steep fall in markets last week

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