India plans expansive budget despite growth, revenue worries
India's finance minister is likely to borrow more than originally planned when he presents the budget on Feb. 1, senior aides and officials said, despite counting on revenues from a national sales tax whose launch date is still unknown.
Arun Jaitley is looking at how to fund giveaways to taxpayers and higher public investment to help nurse Asia's third-largest economy back to health after the government's shock decision in November to abolish high-value banknotes.
That is raising concern among some economists and investors that the government will take too many fiscal risks.
Yet officials say that, given the choice, they would choose growth sustained by state investment over a fiscal straitjacket.
"Some degree of flexibility on fiscal discipline should not be seen as irresponsible fiscal management," one senior government official told Reuters, requesting anonymity due to the sensitivity of the matter.
A fiscal advisory panel, which includes central bank head Urjit Patel, has advocated widening the budget deficit to "slightly over" 3 percent of gross domestic product to free up funds for road, railway and irrigation projects.
"It is not possible to keep up the pace of capital expenditure without increasing the fiscal deficit beyond 3 percent of GDP," another official, briefed on the committee's findings, added.
New Delhi earlier aimed to cut the federal deficit to 3 percent of GDP over the next two fiscal years, compared with 3.5 percent in the year now drawing to a close.
Independent economists are also pencilling in a higher federal deficit in the coming fiscal year, at 3.3-3.4 percent of GDP, creating room for the government to invest an extra $6 billion.
That has drawn a warning from ratings agency Standard & Poor's, which says that slowing the pace of fiscal consolidation could delay India's chances of an upgrade due to its high and rising debt levels.
Jaitley's team forecasts a recovery in nominal GDP growth, the key driver of tax revenues, to around 12 percent in 2017/18.
Yet that assumes oil prices of $55-60 per barrel and a long-delayed Goods and Services Tax being implemented in July.
And the economy is still getting over the shock of Prime Minister Narendra Modi's decision in November to scrap 86 percent of cash in circulation in a bid to purge the economy of illicit "black money".
The International Monetary Fund has chopped a percentage point off India's forecast of real economic growth to 6.6 percent in the current fiscal year to March, meaning China regains the crown as the world's fastest-growing large economy.