The panel has provided flexibility to the government of the day by framing escape clauses to deviate from the fiscal road map by 0.5 per cent for any year under strictly defined circumstances, which include “far-reaching structural reforms in the economy with unanticipated fiscal implications”.
With a projected shortfall of Rs 20,000 crore due to the recent revision in GST
rates, policymakers are looking for ways to meet this year’s fiscal deficit target amid an overall economic slowdown. Any additional capital spending by the Centre could lead to a fiscal slippage this year. Among others, Economic Affairs Secretary Subhash Garg has said the government would reassess its fiscal/borrowing position in December.
However, with 2018-19 Budget preparations picking up steam, there are signs that Jaitley may be keen on meeting the deficit target for the year. Discussions have not yet begun on next year’s targets, officials said.
“Investments have been slow because of surplus capacity but a combination of a better global economy, bank recap and FDI and public investments should help improve private capex,” Morgan Stanley quoted Jaitley as saying.
According to the research note, he also ruled out central support to farm loan waiver schemes announced by any of the states. An announcement on the reform measures linked to bank recapitalisation would be announced soon and one or two instances of consolidation in public sector banks will take place over the next 12 months, Jaitley is understood to have said.
The FM along with top Finance Ministry officials met heads of state-owned banks to discuss the government’s mega recapitalisation plan last Sunday. The Centre had made it clear that recapitalization would have to be accompanied by a number of reforms to strengthen the banks’ management, decision making, and balance sheets.
Meanwhile, for the first time since 2009-10, the government is likely to meet its disinvestment target. The estimates for the year are Rs 72,500 crore, the highest ever for a given year. The Finance Minister said that while power and oil companies would remain public sector entities, a mix of privatisation (like in the case of Air India and Dredging Corp) and divestments would have to be used to raise resources”.