New Delhi: Prime Minister Narendra Modi will have to introduce a slew of measures over the next four months to meet the tough 2014/15 fiscal deficit target.
To match the great expectations of his victory, the government will have to work harder, with both factory utilisation and capital spending remaining low.
Parliament convenes on Monday for a month-long session in which the government is confident of passing legislation to allow more foreign investment in the insurance industry, despite hostile opposition parties. Other Bills, including labour and land reform, will also face stiff opposition.
After the session ends on December 23, focus will turn to Finance Minister Arun Jaitley’s second budget, due in February, and seen as a chance for the government to address criticism it has not moved quickly or boldly enough on the economy.
Jaitley set a tough fiscal deficit target of 4.1% of GDP in his maiden budget. Slack tax revenues and the challenge of raising a record $9.5 billion target from asset sales could force him to cut spending, risking a fragile economic recovery.
India looks set to miss its fiscal target this year, say some financial experts. Missing the target would not be such a bad thing, given that looser fiscal policy could help the economic revival.
After moving slowly on economic policy, including the asset sales, in his first six months in office, the government has now picked up the pace.
Last week the government announced it would auction dozens of coalfields by February as well as allow foreign firms to mine coal for the first time. Even if such moves are implemented straight away, their impact will take months to be felt.
GDP data due on November 28 will give a clearer picture of how the economy fared in the quarter to September, but with factories running nearly 30% below capacity, few expect a big rebound from the worst slowdown since the 1980s.
Recognizing that the investment and economic recovery is “yet to materialise”, and
Realising that tax receipts are well below budget estimates, the government has turned to excise measures such as a fuel tax to claw back revenue.
One proposal under discussion is to place a duty on imports of crude oil. The proposal is opposed by India’s oil refiners. Other revenues could come from planned auctions of mobile telephone and FM radio spectrum early next year.
Â