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India may pump in Rs 50,000 crore stimulus

India's benchmark 10-year bond rose 2 basis points to 6.68 per cent after Reuters reported on the extra spending plan.

New Delhi: India’s government is considering a plan to loosen its fiscal deficit target to enable it to spend up to Rs 50,000 crore ($7.7 billion) more to halt an economic slowdown, two government officials with direct knowledge of the plan said on Thursday.

Growth in Asia’s third-largest economy slowed to a three-year low of 5.7 per cent in the quarter that ended in June, and finance minister Arun Jaitley said on Wednesday that the government was looking for ways to speed it up.

The officials, who declined to be named as the measures have not been made public yet, said the extra spending was estimated to widen the federal fiscal deficit for the financial year ending next March to 3.7 per cent of GDP from a budgeted target of 3.2 per cent.

“The fiscal deficit is not a sacrosanct number,” one of the officials told Reuters.

The official said that the economy was passing through a “transitory phase” after the government’s decision late last year to outlaw old high-value banknotes and after the launch of GST in July.

India’s benchmark 10-year bond rose 2 basis points to 6.68 per cent after Reuters reported on the extra spending plan.

Although growth was already slowing, Prime Minister Narendra Modi’s decision last November to scrap the old banknotes, in a bid to flush out money hidden from tax officials, wiped out about 86 per cent of the currency in circulation almost overnight.

The decision hurt consumer demand in an economy where most people were paid and spent in cash, analysts said.

With the economy still reeling from the cash clampdown, the faulty implementation of GST then made doing business far more complicated for many companies.

Mr Jaitley has held a series of meetings this week to explore ways to revive the economy.

“The government could ask parliament to give its approval to defer the fiscal consolidation path this year,” the second government official said.

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