BackArun Jaitley’s tasks
The new finance minister has to tackle sluggish economic growth, high inflation and messy public finances
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Arun Jaitley has his work cut out. Economic growth is sluggish, inflation is too high for comfort and public finances are in a mess.
The new finance minister would do well to focus on the fiscal deficit right away. There is little scope for a significant fiscal correction right now, but there are two things that Jaitley can do when he presents the first budget of the new government later this year.
One, he should announce a credible plan to lower the fiscal deficit over the next three years, followed by a commitment to create a political consensus for a new fiscal law to limit future shortfalls. Two, he should present a plan to switch expenditure from subsidies to investment so that tax revenue is used to create assets rather than support consumption.
Fiscal compression will eventually help ease excess demand in the economy and reduce inflationary pressures. Jaitley should also allow the Reserve Bank of India to do its job without unnecessary interference from New Delhi.
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