Arun Jaitley may stick to old roadmap on fiscal deficit

New Delhi: Despite advise from government economic advisors, Union Budget may not see a high fiscal deficit target for 2015-16. This is because government is wary that such a step will not go down well with the rating agencies (which have recently turned positive over India) and the international investors.

In a mid-year report, finance ministry’s economic adviser Arvind Subramanian had urged a comprehensive review of India’s medium-term fiscal strategy to create space for higher capital spending. Even Arvind Panagariya vice-chairman of Niti Ayog had asked for loosening deficit targets to boost capital spending.

But any loose fiscal deficit target will mean that RBI may not go for any aggressive cut in interest rates, as high public spending will raise fear of sparking inflation. In fact industry has also asked government to follow fiscal prudence in the union budget. Apex industry chamber CII said on Sunday that it hopes in the Union Budget 2015-16, the FM would keep a firm focus on fiscal prudence and stay the course on fiscal discipline. Underscoring the significance of reining in the fiscal deficit, Mr Chandrajit Banerjee, director general, CII said that “a restrained fiscal deficit would keep inflationary tendencies under check and facilitate “crowding in’ of private investment thereby strengthening the recovery process.”

In its suggestions for the budget, CII requested the government to explore non-tax options of garnering revenue. “We believe the government will work towards reducing the fiscal deficit, which is a key factor for any government,” said Kamlesh Rao, CEO, Kotak Securities. However, HSBC Research in a note said that since then the macroeconomy has improved meaningfully, some room for fiscal stimulus has opened up.