The finance minister said the government will spend 100 percent of the budgeted capital expenditure by March 2019
The government on Saturday reaffirmed its intent to walk the talk on fiscal discipline, amid heightened optimism that the economy is poised to move into a faster lane, but steered clear of committing any measures to contain fuel prices despite growing public pressure.
“The government is confident that it will strictly maintain a 3.3 percent fiscal deficit (for 2018-19),” finance minister Arun Jaitley told reporters after a three-hour Prime Minister Narendra Modi-chaired meeting to take stock of the economy.
“Capital expenditure has already reached 44 percent of the budgeted expenditure,” Jaitley said. The finance minister said the government will spend 100 percent of the budgeted capital expenditure by March 2019.
Capital expenditure, as opposed to revenue expenditure, is viewed as more productive with strong multiplier effects as it involves money spent on acquisition of assets such as land, buildings, machinery and equipment.
“We will end the year with 100 percent capital expenditure without any cuts,” Jaitley said.
Modi met top finance ministry officials on Saturday to review the current economic scenario, in what was being seen as a move to work out a strategy to bolster market’s confidence and improve the macroeconomic scenario.
On Friday, the government announced a five-point strategy to arrest the rupee’s slide, after a late evening meeting that the prime minister took with Jaitley and Reserve Bank of India (RBI) Governor Urjit Patel, among others.
The measures include removal of withholding tax on Masala bonds, relaxation for foreign portfolio investors and curbs on non-essential imports to contain the widening current account deficit (CAD), which has widened to 2.4 percent of GDP in April-June, and check the rupee’s fall.
These measures are likely to have a positive impact to the tune of $8-10 billion, a top finance ministry official said.
Despite robust GDP growth and falling inflation, India is facing the threat of a widening twin deficit—current account and fiscal deficit—led by a clamour for an excise duty cut on fuel as falling value of rupee against dollar has made petrol diesel more expensive for the common man.
Weakening domestic currency against dollar has hardened benchmark bond yields that have surged their highest in four years, apart from escalating import bill and depleting forex reserves.
On September 12, rupee plunged to a record low of Rs 72.91 against the dollar but recovered around to close at Rs 72.19. On Friday, rupee closed at Rs 71.84 per dollar.
The rupee has fallen more than 13 percent this year, making it the worst performing Asian currency. Investors have been pulling out of emerging markets, betting on a stronger US economy.
On Saturday, Jaitley said India’s “growth rate will be higher than what was projected in the budget” and “inflation was broadly under control”.
The Indian economy grew 8 percent in April-June this year, the highest in two years, amid signs that households are buying more and companies, are adding capacities, shrugging off the disorderly effects of the twin shocks of demonetisation and the Goods and Services Tax (GST).
The Economic Survey, the finance ministry’s annual official economic report card, had projected that India will grow at 7 to 7.5 percent in 2018-19.
India’s retail inflation fell to 3.69 percent in August, lowest in ten months, driven by cheaper food items, but could up in the coming months, driven by high fuel prices and the costlier cereals on the back of higher minimum support prices (MSPs).
“Today’s (meeting) was an internal meeting with the various departments of the finance ministry. Detailed presentations were made by the department of revenue, the department of economic affairs, department of expenditure and Dipam (department of investment and public asset management),” Jaitley said.
The finance minister said that direct tax collections were ahead of budgeted targets with anti-black money measures, demonetisation and goods and services tax (GST) beginning show results.
“There has been a phenomenal increase in the tax assessee base and the quantum of advance tax payments,” Jaitley said. According to the central board of direct taxes (CBDT), the direct tax collections this year could exceed the budgeted targets, he said.
“GST is settling down. With the kind of pick up in consumption, GST (revenues) will go up. The government will l comfortably meet the tax revenue targets,” Jaitley said.The finance minister also said that the government may exceed the disinvestment revenue target this year. The government has targetted to earn Rs 80,000 crore in 2018-19 by selling stake in government-owned companies.