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  1. Arun Jaitley bets on infra spending, rate cut

Arun Jaitley bets on infra spending, rate cut

India’s economic growth would be on the shoulders of infrastructure creation, for which the recent Budget provided...

By: | New Delhi | Published: March 18, 2015 1:08 AM
Arun Jaitley, Arun Jaitley tax, Arun Jaitley reforms, Indian economy, RBI, RBi rate cut, RBI monetary policy

Arun Jaitley sought to rebut the Opposition’s view that the government was disinclined to pass the full benefit of low oil prices to consumers. (PTI)

India’s economic growth would be on the shoulders of infrastructure creation, for which the recent Budget provided a R70,000-crore boost, finance minister Arun Jaitley said on Tuesday, strongly defending the widening of the fiscal consolidation roadmap, saying it was necessitated by higher transfers to the states.

“That (the plan to achieve the fiscal deficit target of 3% of GDP in three years against two planned previously) gave me additional fiscal space of R50,000-60,000 crore,” Jaitley said in the Lok Sabha, adding that the benefits of low oil prices will largely go to the railway and highway sectors as additional capital spending.

Dismissing concerns that higher resources to states may not be put to productive use, he said states are fiscally more prudent than the Centre.

States’ combined fiscal deficit was 2.3% of GDP, lower than that of the Centre, he noted.

The government in Budget 2015-16 has set a target to reduce the fiscal deficit from 4.1% in FY15 to 3.9% in FY16 versus the earlier plan of 3.6%. Given the low revenue growth, it had to compress FY15 expenditure drastically, but made an effort, albeit inadequate, to trigger a shift to capital spending in FY16.

India’s current account deficit (CAD) will “hopefully” come down to less than 1% of GDP in FY16, creating an environment conducive for faster economic growth, Jaitley said, replying to a discussion on the general Budget in the lower House.

The CAD, which rose to a record and discomforting high of 4.7% in FY13, narrowed to 1.7% in FY14 and is projected to be be 1.3% in FY15. The CAD for first nine months of FY15 stood at 1.7%. The decline in recent months was primarily aided by a crash in global crude prices and a sharp decline in gold imports, even as export growth has lately turned negative.

In a subtle message to the Reserve Bank of India, Jaitley said interest rates have to moderate further to bring down the cost of capital for businesses to accelerate economic growth. Wholesale price inflation turned negative for a fourth straight month, dropping to -2.06% in February, its lowest at least since April 2005 when the current series was introduced, reflecting the massive drop in global crude oil prices that drove down fuel inflation sharply. The Consumer Price Index rose 4.37% in February.

“The world sees India as a bright spot. We must use this opportunity (to grow faster),” Jaitley said, adding, “Let politics of obstructionism not go to the next stage.”

Jaitley sought to rebut the Opposition’s view that the government was disinclined to pass the full benefit of low oil prices to consumers. Part of the cushion on account of low oil prices was retained to compensate losses to the tune of Rs 30,000 crore incurred by state-run oil marketing companies because of the sudden crash in prices. That the common man also benefited, he said, was evident from the fact that petrol and diesel prices were reduced as many as 11 times in FY15.

The government is expecting the GDP to grow by 7.4% in FY15 and expand at a higher rate of 8% to 8.5% in FY16. Emphasising that the government is committed to creating an environment to spur investment, he said ease of doing business is being improved to attract more domestic and foreign investment for development of the country.

The minister rejected the Opposition charge that the government was pro-rich in proposing to reduce the corporate tax rate to 25% from 30% over a period of time, saying that he has borrowed the idea from the UPA government’s Direct Tax Bill which proposed this rate.

Jaitleyspeak
* Change in fiscal consolidation road created a fiscal space of Rs 50,000-60,000 crore
* Current account deficit could decline to less than 1% of GDP in FY16 from an estimated 1.3% in FY15
* Interest rate has to be lowered to accelerate economic growth, as inflation is largely under control
* Benefit of low oil prices largely passed on to consumers, although a part was retained to offset Rs 30,000-crore OMC losses due to sudden crash in prices

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