1. Real possibility of govt delaying fiscal deficit targets: Fitch

Real possibility of govt delaying fiscal deficit targets: Fitch

Managing fiscal arithmetic after implementing seventh pay panel recommendations will be a challenge and there is a "real possibility" of Finance Minister Arun Jaitley delaying the fiscal consolidation plan again, Fitch said today.

By: | New Delhi | Published: December 8, 2015 5:54 PM
fiscal deficit

Managing fiscal arithmetic after implementing seventh pay panel recommendations will be a challenge and there is a “real possibility” of Finance Minister Arun Jaitley delaying the fiscal consolidation plan again, Fitch said today. (PTI)

Managing fiscal arithmetic after implementing seventh pay panel recommendations will be a challenge and there is a “real possibility” of Finance Minister Arun Jaitley delaying the fiscal consolidation plan again, Fitch said today.

“The main issue for the budget will be fiscal issue, how are they going to manage the 0.5 per cent extra wage bill. Also, it would be interesting to see what the medium term fiscal consolidation looks like,” the ratings agency’s director Thomas Rookmaaker told reporters here.

When asked if there is a possibility of the roadmap to achieve 3 per cent fiscal deficit target by FY18 being deferred, Rookmaaker said, “I think it’s a possibility. There would be some tough choices to be made by the government in the next budget, part of the choice will be the fiscal consolidation programme. Yeah, that’s a real possibility. They have done it (in the past).”

In his first full budget presented in February, Jaitley had announced that he will concentrate on growth and put off the fiscal consolidation plan. He had budgeted fiscal deficit at 3.9 per cent, and promised to spend extra on capital investments.

Affirming its “BBB-” rating on the country’s sovereign rating yesterday, Fitch had warned that factors, including a deviation in the fiscal consolidation path, could lead to a negative rating action in the future.

Reiterating the problems for the fiscal math, Rookmaaker said that attaining growth is no more a problem area for the country but fiscal deficit is one.

The government has to take difficult decisions in the budget, which can include cutting subsidies to curb expenditure on items like fertilisers and also upping revenues.

He, however, added that it has not seen any alternative plans presented by the government on the fiscal front and hence, the budget will be a keenly watched event. Rookmaaker, however, added that sticking to the fiscal deficit path will help establish credibility for the government.

The seventh pay commission’s recommendations of a 23.6 per cent hike in government employees’ wages from January 2016, which will cost an additional Rs 1.02 trillion or over 0.5 per cent of GDP, had resulted in concerns being expressed on the fiscal deficit front.

The government is committed to reduce the fiscal deficit to 3 per cent by FY18 and has already spell out a path to achieve that. Under the plan, it expects to close the ongoing financial year with a fiscal deficit of 3.9 per cent and bring it down further to 3.5 per cent next fiscal.

Citing the need to boost growth, Jaitley had delayed the target by budgeting fiscal deficit at 3.9 per cent for 2015-16, as against the earlier 3.6 per cent.

Rookmaaker said that while upping of wages has some positive effects as well, like a jump in consumption, the impact on inflation and fiscal deficit are the key concerns.

He said passage of the GST Bill will be credit positive, but the exact impact on the government balancesheet depends on the exact shape and form of the bill.

On the external front, he said India is placed better against its peers with the same rating.

The agency does not see any strong depreciation in the rupee, though a rate hike by US Fed expected next week can cause some temporary volatility, he said.

Stating that there is a divergence between the inflation expectations of analysts and the common man, Rookmaaker said there is a need for the monetary policy to curb expectations around price rise.

  1. R
    rohan
    Dec 8, 2015 at 3:03 pm
    Now Government has Adobe Photo Shop at its disposal.
    Reply

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