In the run-up to Budget 2016, at one of the meetings which the Budget group headed by Finance Minister Arun Jaitley had with the Prime Minister, the merits and de-merits of sticking to a committed fiscal deficit target for the next fiscal year were listed with the final choice being left to Narendra Modi.
There were many outside of the government including economists and some inside who were arguing persuasively for easing spending and to invest more — with the private sector unable to step in given their stretched balance sheets, torn in the case of some — given the need to create more jobs and get the economy moving.
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But on Monday when Jaitley announced that the government would not deviate from the path of fiscal consolidation and stick to a fiscal deficit target of 3.5 per cent of GDP in 2016-17, it was perhaps also a reflection of the fiscal conservatism of the man who heads the government, and under whose economic watch in Gujarat, fiscal and revenue deficits were relatively low. That and a more project-oriented approach without the budget reflecting any big ideas back in his home state may have rubbed off here too or in the budget imprint, according to officials who have worked with him.
For a good part of the last decade, including the period 2002-03 to 2011-12, some of the key indicators such as fiscal deficit — the excess of expenditure over revenue and indicator of the total borrowing of the government — declined. So did revenue deficit. And when the Fiscal Responsibility and Budget Responsibility Act or FRBM Act kicked in during 2005 with the target of bringing down the fiscal deficit to 3 per cent or below by 2008-09 and revenue deficit to zero, Gujarat achieved it a year ahead. The state was revenue surplus in 2006 and later too, going on to achieve the target of zero revenue deficit in 2006-07 against the targeted 2007-08. In subsequent years too, both revenue deficit and fiscal deficit have remained relatively low, reflecting fiscal conservatism and higher cash balances.
But it can well be argued that some other states too have done it, especially at a time when economic growth was buoyant in the 2004 to 2009-10 period and considering that Gujarat has often been on top of the pecking order in terms of investment and industry output.
In the budget making tradition and process, the Finance Minister holds meetings with the Prime Minister along with his core team to discuss some of the big proposals and seek direction. The budget speech too is run past the Prime Minister. And the level of intervention has varied over the years, depending on how strong the Prime Minister is or the level of interest in economic issues or management as in the case of Manmohan Singh who was himself a former Finance Minister.
But the political approach appears to be evident in the proposal to provide LPG connections to 1.5 crore households below the poverty line and ensure universal coverage of cooking gas and access to health care and targeting of what this government appears to believe are giveaways such as exempting dividends from tax at the hands of the receiver. For promoters of top companies, this is a big bonanza and doing this could well be an attempt to shed the image of a pro-corporate government — a charge which the Congress has been hurling for a while.
Last year, it was a reflection of a project orientation with several schemes or programmes being announced with outlays of Rs 100 crore each. And suggestions such as modern Braille presses and printing of currency notes with Braille-like signs to assist the visually challenged.
This time, it appears to be in the form of tax breaks for the Gujarat International Finance Tech City or GIFT City, a project which was kicked off during Modi’s tenure in Gujarat.
Similarly, on targeting of subsidies, political support for the Finance Minister may be forthcoming considering that his boss has been perceived to be against giveaways. That’s where the decision to provide legal backing to Aadhaar, which will eventually help prune subsidies by directly crediting it to the account of the beneficiaries, will count.