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GDP at 3-year low: Govt plans Rs 50,000 cr stimulus to revive economy; may breach fiscal deficit target

The final decision on the fund infusion and on breaching the fiscal deficit target will be taken by Prime Minister Narendra Modi, a media report said

Edited by: India TV Business Desk, New Delhi [ Updated: September 22, 2017 9:28 IST ]
Finance Minister Arun Jaitley with Prime Minister Narendra
Image Source : PTI Finance Minister Arun Jaitley with Prime Minister Narendra Modi - file photo

With India’s economic growth slowing to a three-year low of 5.7 per cent in the quarter ended June, Finance Minister Arun Jaitley on Wednesday said that the government was assessing all economic indicators and assured that appropriate measures will be taken by the government. The Centre, it is now learnt, is planning a fresh stimulus of Rs 55,000 crore to boost economic growth – a move that could see it loosen its fiscal deficit target.

A Reuters report, citing government officials in the know, said that the Centre   is planning to spend up to $7.7 billion as growth slowed in Asia’s third largest economy. The officials, who declined to be named as the measures have not been made public yet, said the extra spending was estimated to widen the federal fiscal deficit for the financial year ending next March to 3.7 percent of GDP from a budgeted target of 3.2 percent.

“The fiscal deficit is not a sacrosanct number,” the report quoted one of the officials as saying.

The government’s focus in this fresh monetary push will be on spending more on bank recapitalisations, rural jobs programme and rural housing, the report quoted the official as saying. The government could ask Parliament to grant approval to defer the fiscal consolidation path this year, it added.

The development comes as Finance Minister Jaitley undertakes a series of meeting with his Cabinet colleagues and other key functionaries to chalk out a way to deal with the current situation. A final decision with respect to the fresh stimulus and on breaching the fiscal deficit target will be taken by Prime Minister Narendra Modi.

Analysts have alluded to the twin measures of demonetisation and the Goods and Services Tax as being responsible for the current economic situation.

In November last year, the government decided to ban high-value currency notes, wiping off as much as 86 per cent of the currency in circulation in an economy that largely deals in cash. Experts have said that the decision had a devastating impact on the unorganized sector and brought economic activity to a virtual standstill.

Analysts have also faulted what some have termed as a hurriedly-implemented Goods and Services Tax for a lull in business activity, with many businesses still grappling to deal with the changes that the new all-encompassing law brought about by the government.

Traders have complained of struggling with the changes, especially in terms of compliance, largely due to technical glitches. FM Jaitley said recently that on the last day for filing interim GST returns on the GST Netowrk, only 25 per cent had complied with the deadline.

While the government believes this is just a transitory phase, consumer demand is markedly low and industrial activity is also on a slowdown. As of July, 15 of 23 manufacturing industries recorded a contraction, adding to concerns over the state of the economy.

The combination of all these factors has had a significant impact on public finances. Just last week, Finance ministry officials said the revenue shortfall in 2017-18 could be at least $13 billion if the economy failed to recover.

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