3 per cent of GDP — not a very significant departure and still considerably better than the FD in 2014-15 of 4.9 per cent of GDP versus the maximum permissible under the Fiscal Responsibility and Budget Management Act of two per cent of GDP.The government does not have the luxury to cry over spilt milk. The shortfall against the target would be of around Rs 30,000 crores. INR was at Rs 63. It needs to keep delivering public services. But with inflation at historically low levels — the consumer price index below two per cent — and oil prices relatively stable, high inflation does not appear to be a near-term risk. Allowing this additional expense to pass through to retail prices can spur inflation.75 per cent (7. The BJP stumbled in believing that India had earned an entitlement to grow, faster than orchard netting suppliers China, at eight per cent per year. These include LPG and kerosene subsidy in urban areas.Another downside is that depreciating the rupee by nine per cent makes oil imports, consumed domestically, more expensive by around Rs 30,000 crores. Consequently, the risk of GST collecting less than the targeted amount is minimal. The actual nominal growth may not exceed nine per cent (six per cent real growth and three per cent inflation). The differential between rural and urban wages should enable urban residents to pay for clean, commercial energy. Growth was bound to suffer because India depends significantly on private entrepreneurship and capital. Reducing the subsidy on urea (Rs 50,000 crores) is an environment-friendly option.25 per cent inflation). It would increase the fiscal deficit (FD) from the targeted 3.All governments tend to game their performance metrics. Well-intentioned measures — to end black money, resolve the stressed bank loans and reform indirect taxes added to the crowded agenda and disrupted entrenched business interests.
This means reducing the royalties, taxes and cess on petroleum. More important, any slack due to the flight of foreign hot money can be mitigated by domestic investors with idle savings, desperately in search for rewarding investments. The overvalued INR not only makes exports uncompetitive, it also makes imports cheap, which hurts domestic manufacturing, constrains new investment, inhibits growth and job creation. The department of expenditure has expertise in identifying and cutting fat budgets. Growth was budgeted at 11.The binding constraint is that hefty cuts in revenue expenditure amounting to a hefty Rs 60,000 crore will be needed to maintain the RD at two per cent of GDP.2 per cent of GDP to 3. Implementing structural reforms — making labour markets less rigid, reducing the regulatory overburden on business and improving poor infrastructure, cannot be done within this year. A cheaper rupee also has the virtue of discouraging gold imports, which have surged in recent months, by making gold more expensive, relative to the returns on financial investments. Notwithstanding our administration being colonial in structure, it works quite well under stress with targeted, short-term deliverables. We must, instead, look for the low-hanging fruit to maintain macro-economic stability this year in the hope of higher, even possibly eight per cent growth, in 2018-19.Balancing the budget judiciously merely manages the negative outcomes of low growth. But fortunately, this possibility had been anticipated and factored into the rather conservatively targeted increase of 6. A weaker INR and a higher than targeted fiscal deficit might induce a flight of foreign, hot money, anticipating higher inflation. Also, there is no shortage of liquidity in the domestic market, so the government can borrow without crowding out the private sector.An additional uncertainty this year is that the Goods and Services Tax might reduce the net tax levels due to the new facility of netting-off taxes paid on inputs.
Barring defence, security, social protection, human development and infrastructure, significant reductions in budgeted revenue expenditure are possible to keep the revenue deficit at below two per cent of GDP, as targeted.90 per US dollar four years ago, in September 2013. This makes the total revenue shortfall around Rs 60,000 crores. This has caused a flutter in the first two month of July and August with 65 per cent of the GST revenue recorded being set off against input tax credit on pre-GST stock of goods.Suresh Prabhu, the new minister for commerce, just days into his job, is already evaluating possible incentives to kickstart export growth, which has languished since 2014.9 per cent for excise and service tax, whereas customs and income-tax revenue were budgeted to grow by 11 per cent and 20 per cent respectively over the previous year’s collections. Similarly, addressing GST glitches and minimising the compliance burden can significantly improve business sentiment. Removing constraints on exports can add to growth.5 per cent real growth and 4.. This limit reduces the scope for borrowing, to fill the revenue shortfall, to around Rs 16,000 crores.The targeted revenue deficit (RD) is already 1. Realigning the Indian rupee to more realistic levels could be his best bet. Achieving six per cent growth this year, with fiscal stability, is one such challenge.Of course, there are negative consequences of depreciating the rupee. A targeted approach could be to reduce non-merit subsidies. Smart governments guard against accepting the make-believe as real.1 per cent of GDP. Since then higher inflation in India versus the United States has eroded the real value of the rupee.Also with slower GDP growth, the increase in the aggregate tax revenue will be lower.
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