Govt will maintain quality of fiscal consolidation, despite a possible spike in expenditure due to 7th Pay Commission, OROP
New Delhi: The government will achieve its fiscal deficit target this year and the next, despite a possible spike in expenditure due to the recommendations of the Seventh Pay Commission and the implementation of the One Rank One Pension (OROP) scheme, finance minister Arun Jaitley said on Friday.
“We are not worried about achieving the fiscal deficit target. This year, not only the fiscal deficit target will be achieved, the quality of fiscal deficit will also be maintained, which has been in suspect in the past,” he said at the Hindustan Times Leadership Summit in New Delhi.
India’s gross domestic product (GDP) is estimated to grow 7.5% in the year to 31 March, the finance minister said.
In the first half of 2015-16, the economy grew 7.2%. The government has set a fiscal deficit target of 3.9% of GDP for the current fiscal year and 3.5% in 2016-17.
Lower nominal GDP growth (6% in the September quarter) and dismal progress in the divestment programme (Rs.69,500 crore target for 2015-16) are expected to make it difficult for the government to achieve the target.
Although there could be a spike in the share of salaries and pension in aggregate spending in the first two-three years due to the recommendations of the pay commission and OROP, it will eventually come down to its historical level of 2.5% of GDP, as economic growth picks up and base of GDP widens, Jaitley said.
The government will not indiscriminately reduce small savings rates, said the finance minister. The rationalization will be balanced with “political pragmatism”, he said, adding that the government is unlikely to reduce interest rates on the small savings scheme for the girl child introduced in the budget.
The finance ministry in September had made public its intention to review interest rates on small savings, which includes post office savings schemes and Public Provident Fund, after bankers said high rates on such state-run schemes make it difficult for them to cut fixed deposit rates. With small savings deposits commanding a rate of 8.7-9.3%, banks have been reluctant to transmit the entire policy rate reduction by the Reserve Bank of India to borrowers.
On the reduction of the corporate tax rate from 30% to 25% over four years, Jaitley said it will be accompanied by a cut in exemptions, indicating that there won’t be any revenue implications for the government.
On the delay in the passage of the constitutional amendment bill required for the proposed goods and services tax (GST), Jaitley said that there have been instances in the past when some bills have faced a delay in the Rajya Sabha, but they have never been indefinitely stalled.
“It should not happen that an indirectly elected House repeatedly vetoes the decision of a directly elected House,” he said.
It is unlikely that any political party will have an absolute majority in the Rajya Sabha in the near future, he said, hinting about the need for a consensus among political parties to get important legislation passed.
Talking about GST rates, Jaitley said some luxury and pollution-causing goods should be taxed at higher rates compared with other goods.
“The Congress’s demands that the GST rate should be capped at 18% and included in the constitutional amendment bill itself will mean that these goods will not be taxed at higher rates,” the finance minister said.
Source:- Live Mint