Arun Jaitley faces a trilemma of deficit, capex, wages
It perceives the government will find it difficult to retain its fiscal target of 3.5 per cent of GDP in 2016-17.
Mumbai: All eyes in the coming Union Budget will be on how the government manages the tight-rope walking between holding the fiscal deficit target whilst providing for the huge expenditure burden placed by the 7th Pay Commission and the One Rank One Pension scheme.
“Fiscal consolidation, enhancing capital spending and revising pay scales poses a policy trilemma for Union Budget 2016-17,” said ICRA in a pre-budget note.
It perceives the government will find it difficult to retain its fiscal target of 3.5 per cent of GDP in 2016-17, which analysts also agree, has been made more challenging by the commission’s award which could cost the government over Rs 1 lakh crore in 2016-17, and the implementation schedule for which is awaited in the Budget.
Since private sector spending is yet to begin, ICRA feels the government spending on infrastructure is likely to remain a critical engine of economic growth.
The government would have to undertake a mix of revenue augmentation and expenditure correction measures like removing some of the constraints by strengthening public sector banks’ balance sheets through direct equity infusion and getting additional fund flow through the infrastructure fund NIIF, which could help in reducing the vulnerability of some large infrastructure projects.
Simultaneously finance minister Arun Jaitley would have to enhance budgetary outlays for capital spending while avoiding a fiscal slippage, it said.