Jaitley Will have to Balance Fiscal Deficit and Spending: IL&FS

When Finance Minister Arun Jaitley presents his first full-year Budget later this month, he will have the unenvious task of juggling public spending and containing fiscal deficit, analysts say.

 

"Expenditure needs to be high for higher growth but at the same time fiscal consolidation is something to focus on. So that is the dilemma which the finance minister is going to face, that is what he has to overcome," Vibhav Kapoor, group chief investment officer, IL&FS told NDTV. (Watch)

 

"He has to find out ways of doing both the things that is maintaining fiscal consolidation and at the same time having enough money for increasing plan expenditure by 20-25 per cent."

 

Mr Jaitley had retained the 2014-15 fiscal deficit target at 4.1 per cent set by the previous UPA government; for 2015-16, deficit has to be narrowed to an eight-year low of 3.6 per cent of GDP according to the fiscal roadmap.

 

The government's key economic advisers want Mr Jaitley to row back on the deficit reduction plan so that more funds can be set aside for boosting expenditure in the much-needed infrastructure sector.

 

A rise in government spending will give a fillip to the private sector, which is struggling with low utilisation and demand because of the slowdown in the economy.

 

"I think it's very much needed (higher public spending) as the private sector doesn't have the wherewithal especially at this point in time where lot of private companies' balance sheets are over leveraged and they don't have the capacity to raise money at this point in time. So you definitely need some kick-starting from public expenditure," Mr Kapoor said.

 

The government's spending over the last three years indicates that on an average it spent around 6.4 per cent of its total budgeted spending towards planned capital expenditure, which is intended to boost infrastructure growth in the country.

 

In 2014-15, the government earmarked Rs. 1.21 lakh crore towards planned capital expenditure, which is 6.8 per cent of the overall Rs. 18 lakh crore Budget outlay.

 

The quality of numbers Mr Jaitley puts out in the Budget will also be closely watched because governments have the tendency to overestimate revenues at times.

 

"Numbers have to be transparent and they have to be realistic so that it doesn't again happen that in the fourth quarter you find that revenues have not come in in line with expectation and then plan expenditure has to be cut down, as has happened over the last 4 years," Mr Kapoor said.