Jaitley vows to stick by deficit target despite expansionism calls

06 February 2015

Finance Minister Arun JaitleyFinance Minister Arun Jaitley on Friday hinted at more spending cuts ahead of the Union Budget, which will be presented on 28 February, saying the government "does not want to live on borrowed money".

"The whole concept of spending beyond your means and leaving the next generation in debt to repay what we are overspending today is never prudent fiscal policy," the finance minister told a gathering of industrialists via video conferencing.

Jaitley's announcement comes at a time when the country's fiscal deficit has already overshot the full-year target.

The government had earlier ordered a 10-per cent cut in non-plan expenditure in October 2014. Spending cuts have become more urgent because of a sharp shortfall in revenue due to the slowdown in the economy.

In his first Budget, presented in July 2014, Jaitley had vowed to narrow the fiscal deficit to 4.1 per cent of GDP.

India's high fiscal deficit has often been red-flagged by foreign investors and rating agencies. In 2014, India's sovereign rating was downgraded because of high fiscal and current account deficit. While the current account deficit is now firmly under control because of a dramatic fall in oil prices, fiscal deficit continues to be high.

The three top rating agencies continue to place India on the lowest rung of investment grade for its debt.

Jaitley is expected to slash fiscal deficit target to 3 per cent of GDP within two years despite official advice to revive the economy with more infrastructure spending.

The government's top two economic advisers, Arvind Panagariya and Arvind Subramanian, have both advocated loosening deficit targets to allow public spending on infrastructure and help revive economic growth.

Jaitley, however, has said that he would like to stick to deficit commitments, while aiming to spend more to revive the economy.

"We have a road map to bring it (fiscal deficit) down a little below 3 per cent over the next couple of years and then we intend to maintain it," he said at an event in Davos.

Power, energy, railways and ports will be high on priority for the government, Jaitley said Friday, hinting at more public investment into these sectors.

The finance minister also reiterated his commitment to a stable tax regime, saying that ''no unfair effort'' will be made by the states or the Centre to mop up revenues.

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