Winter is over — for the Indian economy. And the new fiscal year, beginning tomorrow is pointing towards a revival of the economy back to the decent 7% plus growth. But in governance, it is never the clean slate; it’s the carry forward to the next page. In the fiscal year 2017-2018, the turbulence of sudden note ban coupled with indirect tax overhaul caused the economic growth to slump at a three-year-low of 5.7% in the first quarter.
Notwithstanding the setback, the fiscal year 2017-2018 will be credited with first, a successful implementation of the Goods and Services Tax (GST) after 17 years of deadlock and the beginning of the bank cleanup to fix the twin balance sheet problem through Insolvency and Bankruptcy (IBC) and unprecedented Rs 2.11 lakh crore bank recapitalisation plan.
Even as India’s macroeconomic fundamentals remained strong and showed resilience, India’s higher than targeted fiscal deficit, disruptions caused by structural changes, ambitious Budget projects among others will be the challenges for Prime Minister Narendra Modi who is entering the final fiscal lap ahead of 2019 polls.
Here are 5 challenges ahead of Modi government in new fiscal:
The country has adapted to the new indirect tax regime albeit not completely. While it is being termed as ‘work in progress’ that aims to fix the issues over a period of time, the Narendra Modi government has a 10-12 month window to smoothen the process. E-way bill is set to roll-out from the new fiscal year and several rate cuts have been announced over the past few months but a simplification of GST returns filing hangs in balance. The latest data indicated that 30% of taxpayers were still not filing returns and the 70% who did also included those filed nil returns. Curbing tax evasion and increasing compliance will be the big challenges.
The Narendra Modi government in the Budget 2018 announced world’s largest government-funded healthcare cover providing health insurance coverage of Rs 5 lakh per family per annum to 10 crore poor and vulnerable families. The ambitious Ayushman Bharat — National Health Protection Mission got the cabinet nod this week and is scheduled to rollout from October, experts say that it is still a fledgling project and may find difficulty in getting implemented this year effectively given the infrastructural barriers in the smaller towns and rural areas.
International Oil Prices
To begin with, the shocks of higher than expected international crude oil prices have not been budgeted. The benchmark crude oil price which rolled down back to $63-$64 a barrel from $70 mark in February and March is surging back up again. While the tight fiscal situation is understood to have not left room for Arun Jaitley to provide relief against the higher crude oil price or make future provisions, RBI governor Urjit Patel has warned against it and said that India should be prepared for both cases — oil prices moving up or down. The government is comfortable with $60 a barrel and could absorb the shock at between $65-$68 a barrel, but beyond that, it might pose a big problem.
Even as inflation has softened in last three months, it is still above RBI’s 4% target. The central bank forecasts that in the first half of the fiscal year 2018-19, the central bank on the concerns of rising crude oil price and house rent allowance impact. At the current level, economists see status quo in the April Monetary Policy Meet, they also expect a hike in the interest rate by the end of the year. The Budget announcement of raising minimum support price of farmers to one and a half times of the production cost could also have an inflationary impact, which has not been ascertained yet.
The United States and China are on the cusp of a global trade war in which India will be collateral damage. Even as it will not impact India’s exports directly, the country will suffer from increased competition and higher retaliatory trade tariffs.