New Delhi: Finance minister Arun Jaitley said his ministry would soon announce measures to revive economic growth that has decelerated to the slowest pace in three years.
Jaitley’s comments come against the background of the most serious economic challenge the government has faced since it came to power in 2014.
India’s gross domestic product (GDP) growth slowed to 5.7% in the quarter ended 30 June, the slowest in three years, from 6.1% in the preceding three months, sparking concern over the state of the economy.
The residual impact of the 8 November demonetisation move and the 1 July implementation of the goods and services tax (GST) were seen as contributing factors. Current account deficit at a four-year high (2.4% of GDP in Q1 FY18) and rising retail inflation have further exacerbated the macroeconomic situation.
On Tuesday, Jaitley chaired a meeting to discuss the situation and find solutions to the problem. The meeting was attended by railway minister Piyush Goyal, commerce and industry minister Suresh Prabhu and the secretaries of the finance and commerce and industry ministries. The railway board chairman and representatives from the Prime Minister’s Office and NITI Aayog, the government’s policy think tank, were also in attendance.
Jaitley said the measures to revive the economy would be announced soon, after consulting Prime Minister Narendra Modi.
There has been speculation that the revival package could include incentives for exporters, fiscal sops and investments in large infrastructure projects. Reviving economic growth and creating more jobs, promises that the ruling Bharatiya Janata Party (BJP) made to come to power in 2014, are crucial as the party seeks re-election in 2019.
D.K. Srivastava, chief policy adviser at EY India, said the government may announce fiscally expansionary programmes without breaching the 3.2% (of GDP) fiscal deficit target for 2017-18. “Public and departmental enterprises that can spend on infrastructure may be asked to speed up and enhance their capex (capital expenditure) plans for the year. The central government may also co-opt some state governments to work towards this objective."
The government is already at 92% of its full-year fiscal deficit target in the first four months (April-July) of 2017-18 and may find it difficult to spend beyond its budgetary means this fiscal, Srivastava added.
Low oil prices have helped the government, which has not reduced the retail price of petrol and diesel, instead increasing levies on fuel. It has used this money to balance the fisc and spend on development programmes—a sound macroeconomic move, according to many economists.
Still, a recent increase in the price of oil, coming in the wake of unfavourable economic data, has resulted in a wave of criticism being directed at the government. It doesn’t help that the Bharatiya Janata Party had made high fuel prices a major issue when the previous Congress-led United Progressive Alliance was in power.
Jaitley defended the levies on fuel.
“Funds for public investment are coming from resources such as excise duty on petrol and diesel. Public investment has become the foundation of growth at a time when private investment is low. Cutting those investments would mean cutting down allocations for social sector and infrastructure schemes," he said.