A decision on the fiscal deficit target will be taken close to when the budget is presented, says Sitharaman
Finance minister said the govt is talking to public sector banks on how to infuse more money into the real economy
Mumbai: The government’s immediate priority is to infuse liquidity into the system and a decision on the year’s fiscal deficit target will be taken close to when the Union budget will be presented, finance minister Nirmala Sitharaman said.
“We are in a challenging position, but my current focus is to ensure that money reaches the hands of the people, to make sure that government’s own dues are not kept pending and are paid in time," Sitharaman said at a roundtable meeting with editors in Mumbai.
The government is caught between the conflicting objectives of fostering economic growth and keeping the fiscal deficit in check. In the boldest move yet, Sitharaman slashed corporate tax to lift growth from a six-year low, a step that would cost the government as much as ₹1.45 trillion in revenue. This has raised concerns about the government’s ability to meet its fiscal deficit target.
The government had set a 3.4% fiscal deficit target for the current fiscal.
While Sitharaman was non-committal on whether her ministry was considering more measures to boost demand through a cut in personal income tax, she did confirm that the government was examining the merits of instituting a bankruptcy resolution process for the financial services industry.
The finance minister has over the past few months announced a series of measures aimed at kick-starting GDP growth that, according to most forecasts, is likely to fall below 6%.
A slowdown in demand and a tightening liquidity environment have pushed several sectors, including non-banking financial companies (NBFCs) and housing finance companies into a crisis.
Moody’s Investors Service on Thursday slashed its 2019-20 growth estimate for India to 5.8% from 6.2% earlier, saying the economy was experiencing a pronounced slowdown partly related to long-lasting factors.
Sitharaman said the government will address specific challenges on a case-by-case basis after assessing them carefully.
“The government’s priority is to make sure that the money that is being given to banks is moving into the real economy wherever needed. There are also specific challenges, which have to be addressed separately on a case-to-case basis. There are situations, where there are ongoing court cases and environmental issues. All of this has to be assessed carefully," said Sitharaman.
She acknowledged that all issues in the financial sector had not been resolved, especially access to liquidity for NBFCs in smaller towns that service small and medium-sized units. Sitharaman said she will meet top executives of state-owned banks soon.
“I don’t say that I have addressed all the pain points. We are talking to public sector banks on how to infuse more money in the real economy. We are still hearing of cases where NBFCs, which are capable of doing good business, are not getting funds and we are looking into these situations," she said.
Apart from the cut in corporate tax, the government rolled back an enhanced surcharge announced in this year’s budget on capital gains arising from the sale of shares in a company or units of an equity-oriented mutual fund in the hands of an individual.
She also front-loaded ₹50,000 crore of capital infusion for public sector banks.
In addition, Sitharaman said the finance ministry is encouraging departments and public sector companies to speed up project expenditure.
Pointing to further policy tweaks in the reform measures announced so far, she said: “Everything that I have done between June and now was in response to some sectors that are facing stress. And the intervention was in response to the identifiable issues that came up. Essentially, I was going out with an open mind and if you have noticed some of my announcements, there were reforms, which were further calibrated in subsequent meetings."