Jaitley Denounces Mindless Populism Ahead of India Budget

India cannot afford populist policies

and needs fiscal discipline for sustainable economic growth,

Finance Minister Arun Jaitley said ahead of releasing the six-week-old government’s first budget next week.

“If you indulge in mindless populism you burden the

exchequer,” Jaitley told an accountants conference in New Delhi

last night, without mentioning any specific policies. “You

convert yourself into a high taxation society so that you can

indulge in populism. It does not work.”

India’s subsidy bill rose fivefold in the past decade under

the previous government rule to 2.6 trillion rupees ($43

billion) in the year ending March 31. Government subsidies cover

food, fuel and fertilizer in a nation where about two-thirds of

1.2 billion people live on less than $2 per day.

Prime Minister Narendra Modi faces the challenge of

narrowing one of Asia’s widest fiscal deficits as he seeks to

revive the economy following a landslide election win in May.

The scope of the victory has boosted bets he’ll take politically

sensitive decisions such as raising fuel prices, a move that

would reduce subsidies and help narrow the budget gap.

“The overarching message of the budget is fiscal

discipline will be the top most priority,” Shubhada Rao, an

economist with Yes Bank Ltd in Mumbai, said by phone. “It will

be a judicious mix in which expenditure will be switched toward
capital spending while reducing subsidies.”

Rupee Gains

The rupee, which has gained 2.9 percent this year,

strengthened 0.1 percent to 60.0412 per dollar at 10:15 a.m. in

Mumbai, according to prices from local banks compiled by

Bloomberg. The yield on the government bond due November 2023

fell to 8.70 percent from 8.74 percent and the SP BSE Sensex

index rose 0.8 percent.

Over the past month, Modi’s government has increased fuel

prices and train fares, sparking some minor protests. State-run

Indian Oil Corp. raised gasoline prices and diesel prices

yesterday, while railway passenger fares were increased by 14.2

percent and freight by 6.5 percent on June 20.

“You have to follow the path of fiscal prudence, have a

certain amount of discipline,” Jaitley said. “I am sure we

don’t have to wait for the next generation to get the benefits

of what we do today. Very soon you would see benefits

yourself.”

Fastest Inflation

Reserve Bank of India Governor Raghuram Rajan has called

for a fall in subsidy spending while keeping interest rates

elevated at 8 percent to combat Asia’s fastest inflation. Price

gains are beyond acceptable limits, Jaitley said yesterday.

The prospect of the worst monsoon since 2009 combined with

higher oil prices threatens to reignite inflation. Seasonal

rains, which account for more than 70 percent of the nation’s

annual total, have been 43 percent lower than a 50-year average

since June 1, the India Meteorological Department said

yesterday.

To discourage exports of onions, a staple for Indians, the

government raised the minimum price for overseas shipments by

more than 60 percent to $500 per ton, according to a statement

today from the trade ministry. It had set the minimum export

price of potatoes at $450 per ton last week.

India’s consumer price index jumped 8.28 percent in May

from a year earlier, the slowest pace in three months, with

fruits surging 23 percent and vegetables 15 percent, Central

Statistics Office data showed last month. Wholesale price

inflation accelerated to a five-month high of 6.01 percent, the

Commerce Ministry reported.

Budget Deficit

The budget, scheduled to be presented on July 10, will

outline spending for the financial year through March 2015. The

previous government estimated that India’s budget deficit will

fall to 4.1 percent of gross domestic product. The shortfall was

4.5 percent of GDP in the 12 months ending March 31, according

to the finance ministry.

India’s budget gap in the two months ended May was 2.41

trillion rupees ($40 billion), the controller general of

accounts said on June 30. That’s 46 percent of the full-year

target of 5.29 trillion rupees for the year ending March 2015.

While there is a risk Jaitley will revise up the budget

deficit target from 4.1 percent of GDP, an accompanying road map

to narrow the gap would be “a timely step toward a more

credible and transparent budgetary framework,” said Radhika Rao, an economist at DBS Bank Ltd. in Singapore.

“Next week’s budget will need the government to tread a

tight-rope in an attempt to balance growth objectives and fiscal

consolidation,” she wrote in a note today.

To contact the reporters on this story:

Siddhartha Singh in New Delhi at

ssingh283@bloomberg.net;

Unni Krishnan in New Delhi at

ukrishnan2@bloomberg.net

To contact the editors responsible for this story:

Daniel Ten Kate at

dtenkate@bloomberg.net

Jeanette Rodrigues

Jaitley Denounces Mindless Populism Ahead of India Budget