Budget 2016: FM Jaitley may stick to fiscal consolidation road map

NEW DELHI: If Railway Minister Suresh Prabhu’s second budget is any indication of the Narendra Modi government’s thinking, finance minister Arun Jaitley is likely to stay with the fiscal consolidation road map he laid down last year. The general budget could also stagger or even pare allowances to government employees as per the Seventh Pay Commission award as these can be given from a later date and not necessarily from January 1, 2016, going by the Railway Budget.

The railway budget has tried to keep thrust on capital spending even in a year of extra-ordinary spending on wages and with no significant increase in budgetary support and market borrowing and no change in fares, the financing of capex is likely to depend on institutional finance.

There is increased thrust on increasing revenues through non-fare sources, a template the general budget may follow. The fiscal consolidation road map pegs the fiscal deficit for FY17 at 3.5% of GDP compared with 3.9% budgeted in the current year. Changes to this deficit goals has been a subject of raging debate ahead of the budget after Mid Year Economic Analysis batted for it.

“If the government sticks to the path of fiscal consolidation that would further detract from demand…… The fiscal outlook for the next year (is) looking challenging... It is in this context that the government's commitment to further fiscal consolidation of 0.4% of GDP needs to be reassessed,” said the document authored by chief economic advisor Arvind Subramanian.

The railway budget does not seem to suggest such relaxations. “If the railway budget is a precursor to the union budget, then we expect fiscal consolidation to continue without losing focus on quality of expenditure,” said Samiran Chakraborty, chief economist, Citi India.