Arun Jaitley to Focus on Chidambaram's Unfinished Agenda

The Narendra Modi government's maiden budget is a fortnight away and expectations are rising that Finance Minister Arun Jaitley will likely continue with the fiscal roadmap announced by his predecessor P. Chidambaram. 

Mr Jaitley may not follow the advice of noted economist Arvind Panagariya, who is an advocate of market-friendly, pro-growth economics. The Columbia University economist wanted the Modi government's first budget to boost capital spending even at the risk of a higher fiscal deficit. 

Mr Chidambaram came out with aggressive targets to maintain fiscal discipline after rating agencies threatened to downgrade India's sovereign ratings. According to the roadmap outlined by the Kelkar Committee, fiscal deficit for 2014-15 has to be contained at 4.1 per cent of GDP and further brought down to 3 per cent of GDP by 2016-17. In the 2013-14 fiscal, India's fiscal deficit was 4.5 per cent of GDP.

Fiscal deficit occurs when the government spends more than it earns. Global ratings agency Moody's blames India's high deficit on high debt (20 per cent of government's revenues goes for debt servicing), huge subsidy on food, fuel and fertiliser and narrow tax base.

To meet fiscal deficit targets, Mr Chidambaram cut plan expenditure and rolled over subsidy costs into the current financial year. Mr Jaitley's strategy is however likely to be different, analysts say. The Narendra Modi government has won a massive mandate on promise to bring back growth and jobs. Cutting constructive spending will rob the government of a critical growth lever.


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