Narendra Modi government eyes booster shot for economy; from relief for taxpayers to selling Air India, here is what is on agenda

By: | Updated: October 6, 2017 6:40 AM

The government’s top brass went into a prolonged huddle on Thursday evening, raising expectations of major announcements aimed at invigorating the economy, including fast-tracking the sale of loss-making national carrier Air India and a clutch of steps to ease small taxpayers’ pains due to the goods and services tax (GST).

PM Narendra Modi.

The government’s top brass went into a prolonged huddle on Thursday evening, raising expectations of major announcements aimed at invigorating the economy, including fast-tracking the sale of loss-making national carrier Air India and a clutch of steps to ease small taxpayers’ pains due to the goods and services tax (GST).

Prime Minister Narendra Modi deliberated on the possible booster dose for the economy, whose growth rate hit a three-year low of 5.7% in the first quarter of this fiscal, with finance minister Arun Jaitley and BJP president Amit Shah, even as it was clear that measures to boost public expenditure should not result in any serious increase in the Centre’s fiscal deficit. Given that states are showing slippages on the fiscal front due to farm loan waivers, the Reserve Bank of India (RBI) had advised the government to be cautious on any fiscal expansion plan.

The Budget 2017-18 had pegged the Centre’s deficit at 3.2% of gross domestic product.

Immediately after his meeting with the prime minister, Jaitley chaired the ministerial committee on AI where, sources said, the options of a write-off of roughly half of the carrier’s estimated liabilities of Rs 60,000 crore and a possible haircut by banks were discussed.

In mid-September, the government invited applications from investment bankers, law firms and other entities to advise on the strategic sale of the debt-laden carrier.

The finance minister also met commerce and industry minister Suresh Prabhu and defence minister Nirmala Sitharaman later in the evening. Jaitley even skipped a scheduled address at the World Economic Forum due to these hectic confabulations.

FE had reported earlier that while the write-off planned is of the carrier’s liabilities not backed by assets, the government might also have to incur an expenditure for the settlement of the sovereign-backed part of AI’s aircraft loan of about Rs 21,000 crore.

This is, however, a tall order given the fiscal situation. Recently, the Centre cut the excise duties on petrol and diesel, a move that would reduce its tax receipts by Rs 13,000 crore in the second half of the current financial year. While direct tax receipts are growing slightly better than the budgeted rate, there are still uncertainties about whether the GST collections would be revenue-enhancing this year due to certain accounting issues. Besides, concerns are there about non-tax receipts due to the RBI cutting dividend by half and telecom spectrum receipts expected to be less than the budgeted amount of Rs 44,000 crore.

Earlier in the day, Prabhu said the government is working on policy initiatives, along with fiscal incentives, to support industrial growth and job creation.

The meetings come a day before the GST Council, headed by Jaitley, is to decide on a host of issues, including allowing quarterly filing of tax returns by businesses instead of having to do it every month, setting up a mechanism for faster clearances of refunds to exporters and permitting them to use an export scrip under the Merchandise Export from India Scheme to pay GST. Exporters are also seeking permission to import raw materials at zero duty under the advance authorisation scheme for subsequent exports after value addition.

Prabhu and textile minister Smriti Irani will meet exporters on Friday to find ways to boost exports. With the RBI’s monetary policy panel having refused to cut the repo rate despite sharply trimming the gross value-added growth forecast for the current fiscal by 60 basis points, the government may pitch in with some relief for SME exporters in some way or the other to partly make up for expensive credit costs.

Given the limited fiscal space available (the Centre’s fiscal deficit at the end of August already touched 96% of the 2017-18 budget target), the government intends to adopt a targeted spending method for which it is identifying key sectors. Raising private investments and sectors with potential to create jobs are in focus. The government also intends to sort out teething troubles in the implementation of GST fast so that its benefits are reaped at the earliest.

Lenders to AI in informal talks with the government had expressed their willingness to negotiate with it on how to settle the AI loans. The civil aviation ministry had estimated the value of AI’s physical assets including its 115-strong aircraft fleet (including Boeing Dreamliners), land parcels, buildings and also its valuable flying/landing rights and parking slots at airports across the world. These assets are seen to be worth around Rs 25,000-30,000 crore.

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