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.”
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
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
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.
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
Unni Krishnan in New Delhi at
To contact the editors responsible for this story:
Daniel Ten Kate at
Jaitley Denounces Mindless Populism Ahead of India Budget