New Delhi: India should review its mid-term fiscal strategy, a government report urged on Friday, in a possible indication that Finance Minister Arun Jaitley may have to borrow more to raise pay for government employees and bail out banks.
The report called India "a haven of stability" in a gloomy international landscape but, as Group of 20 finance ministers gathered for talks in Shanghai, warned too of possible currency turmoil in Asia after China's recent devaluation.
The Economic Survey, which sets the scene for Jaitley's third budget on Monday, forecast the Indian economy would grow by between 7.0 per cent and 7.75 per cent in the 2016/17 fiscal year that starts on April 1.
That would be in line with this year's expected outturn of 7.6 per cent but below earlier expectations that growth would accelerate to over 8 per cent.
Although Asia's third-largest economy has overtaken China's as the world's fastest-growing, weak business investment and a growing bad loan problem will compel Prime Minister Narendra Modi to keep the spending taps open to deliver on his promise of jobs for India's 1.3 billion people.
Modi needs to cover the estimated $16 billion annual expense of a once-in-a-decade pay and pension hike for federal employees.
The report also put the total cost of recapitalising banks at $26 billion in the coming years.
The government will stick to its budget deficit target of 3.9 per cent of gross domestic product in the year now drawing to a close, but the coming year will be "challenging" from a fiscal point of view.
The report, written by economic adviser Arvind Subramanian, said that "credibility and optimality" argued in favor of sticking to next year's deficit target of 3.5 per cent of GDP - phrasing that left room for an upward revision.
