Budget 2018: Economists meet Arun Jaitley, divided on fiscal road map

Finance Minister Arun Jaitley met economists and policy experts for pre-Budget consultation on Monday. A number of issues raised, including on raising of minimum pension levels and reducing corporate taxes.

However, the economists were divided on the fiscal deficit. Some wanted the government to stick to the fiscal deficit target of 3.2 per cent of gross domestic product. Others said the short-term economic disruptions due to policy changes did merit fiscal slippage.

“I am sure they (the government) will stick to the deficit target. I think there is a political commitment to do this, though operational constraints may vary,” Rathin Roy, member of the Economic Advisory Council to the Prime Minister, told reporters after the meeting.

Sources who were present at the meeting said others suggested the government could afford to not meet the target this year. The Centre is grappling with the question of its fiscal roadmap not only for this year but for 2018-19.

There are also concerns on revenue. There could be a shortfall of Rs 20,000 crore due to revision in Goods and Services Tax rates. The Central Board of Direct Taxes has pitched for lowering of direct tax targets by Rs 20,000 crore compared to the budget estimates due to slower economic growth. There is also expected to be a shortfall from public sector dividends and telecom spectrum sales.

Some suggested increasing the social security pension, “The amount has been Rs 200 a month. There is no reason to keep it so low. Make it at least Rs 500, even Rs 1,000, if possible, and increase the coverage,” said Jean Dreze. He also suggested full implementation of maternity entitlements, pending for four years.

Former chief economic adviser Arvind Virmani said the government should carry out pending customs and exim duty reforms. Some also recommended long-term capital gains tax on equity, sources said. There were also calls for a cut in corporate tax rates to 25 per cent, from 30 per cent, echoing the views of industry bodies which met Jaitley last week.

Among those attending were finance secretary Hasmukh Adhia, chief economic adviser Arvind Subramanian, expenditure secretary A N Jha and financial services secretary Rajiv Kumar.

Addressing the economists, Jaitley said that gross domestic product growth of 6.3 per cent recorded in July-September period marks the reversal of the declining trend of growth witnessed in the last few quarters. He said the government is following the road map of fiscal consolidation under which the fiscal deficit stood at 3.9 per cent in 2015-16 and 3.5 per cent in 2016-17 and is budgeted to be 3.2 per cent for 2017-18, as per an official release.