New Delhi: For second straight day, Prime minister Narendra Modi on Saturday brainstormed with finance minister Arun Jaitley and officials about the economic situation linked to the Rupee’s recent fall and spike in fuel prices but the government remained non-committal on cutting tax on petrol and diesel. The government claimed that it is determined to keep fiscal deficit at 3.3 per cent of GDP and confident of surpassing the 7-7.5 per cent GDP growth target projected in the Budget.
The government assured that there will be no cuts in capital expenditure for the current fiscal year as it is committed to push economic growth at a time of challenging external environment.
A day after steps to contain the widening current account deficit (CAD) and check fall of the rupee were announced, Mr Jaitley said, “As far as capital expenditure is concerned which is necessary for maintaining high trajectory of growth, already we have spent till August 31 about 44 per cent of budgetary expenditure and we will end the year without any cuts. We will maintain 100 per cent capital expenditure because that is extremely necessary for maintaining growth rate.” “Prime Minister expressed his satisfaction with regard to broad parameters in relation to economy and macro-economic data which is so far emerging for this year,” said the finance minister.
Mr Jaitley exuded confidence of surpassing the 7-7.5 per cent GDP growth target projected in the Budget presented on February 1, meeting capital expenditure targets, surpassing tax collections projections and exceeding the record Rs 1 lakh crore target of revenue mobilisation from government stake sale in PSUs.
“The government is confident that we will have a growth rate higher than what we had projected earlier this year in the Budget,” he said, adding “inflation is broadly under control”.
He, however, did not say if the meeting discussed the recent spike in fuel prices that has led petrol touching a record high of Rs 81.63 per litre and diesel to Rs 73.54 a litre.
Almost half of the retail sale price of petrol and diesel is made up of central and state taxes. The Centre currently levies a total of `19.48 per litre of excise duty on petrol and Rs 15.33 per litre on diesel. On top of this, states levy Value Added Tax (VAT).
There were expectations that the government may cut excise duty on the two fuels to ease burden on the consumers but it seems it didn’t want to take chance as it stands to lose Rs 14,000 crore in revenue from a Rs 1 per litre cut in excise.
The government feels that the country cannot afford to have a twin deficit problem — a depreciating rupee and high crude import bill putting pressure on the country’s current account deficit (CAD), and a fiscal slippage.
“The primary focus of yesterday’s discussions was with regard to current account deficit and how to narrow it down and possible steps with that regard. Today, of course, was an internal meeting in which the Prime Minister took the review of various departments of finance,” Mr Jaitley said.
Departments of economic affairs, revenue, expenditure and disinvestment made detailed presentation to the Prime minister, he said.
There had been concerns that the government may be forced to cut capital expenditure due to volatility in GST revenue collections that can have negative impact on growth as private investment has still not picked up. Some rating agencies had also expressed fear that India may not be able to meet the fiscal deficit target due to high oil prices.
Mr Jaitley said that revenue department told the Prime Minister that direct tax collections are moving ahead of schedule and gains from anti-black money measures like demonetisation and GST have started showing with increase in tax base and in quantum of advance tax which is being made.
The finance minister said that as far as GST is concerned it has started settling down and pick up in consumption will start showing its impact on GST collections in coming months.
The government on Friday had announced a series of measure to strengthen the Rupee including removal of restrictions on external commercial borrowings and masala bonds to control the current account deficit.