Modi nearly out of time to meet deficit goals
New Delhi
INDIA'S Prime Minister Narendra Modi has a long list of pro-growth measures to implement over the next four months, but time may have already run out to breathe enough life into the economy to meet the tough 2014/15 fiscal deficit target.
Mr Modi's election victory in May unleashed a rush of money from foreign portfolios betting that the reformist prime minister would drive a quick recovery. That has yet to materialise.
Parliament convenes on Monday for a month-long session in which the government is confident of passing legislation to allow more foreign investment in the insurance industry, despite hostile opposition parties. Other bills, including labour and land reform, will face stiff opposition.
After the session ends on Dec 23, focus will turn to Finance Minister Arun Jaitley's second budget, due in February and seen as a chance for the government to address criticism that it has not moved quickly or boldly enough on the economy.
Mr Jaitley set a tough fiscal deficit target of 4.1 per cent of GDP in his maiden budget. Slack tax revenues and the challenge of raising a record US$9.5 billion target from asset sales could force him to cut spending, risking a fragile economic recovery.
"India looks set to miss its fiscal target this year, even in the optimistic case that the government fully delivers on its plans to sell stakes in state-owned companies," Capital Economics' Shilan Shah said. He said that missing the target would not be such a bad thing, given that looser fiscal policy could help the economic revival.
After moving slowly on economic policy in his first six months in office, Mr Modi has now picked up the pace. Last week, the government announced that it would auction dozens of coalfields by February as well as allow foreign firms to mine coal for the first time. Asset sales should begin with the sale of a stake in oil firm ONGC in early December.
GDP data due on Nov 28 will give a clearer picture of how the economy fared in the quarter to September, but with factories running nearly 30 per cent below capacity, few expect a big rebound from the worst slowdown since the 1980s.
One finance ministry source said on Friday that 2014/15 economic growth was likely to be at the lower end of the 5.4-5.9 per cent forecast factored into the current budget, while tax receipts may fall short by US$11 billion.
Opposition parties have so far not agreed to support even the relatively uncontroversial insurance bill, or a constitutional amendment needed for a goods and services tax, raising concerns of a log jam in the upper house of parliament, where Mr Modi's party is in minority. Reuters
