Govt loosened purse strings with fiscal deficit in mind, willing to do more: FM

PTI, Feb 29, 2020, 1:58 PM IST

Mumbai: Finance Minister Nirmala Sitharaman on Friday said the government has loosened its purse strings as much as it can on fiscal deficit worries but is “willing” to consider further requirements.

Speaking at television network CNBC -TV18’s awards event, Sitharaman said the government is mulling creating a Development Finance Institution (DFI) to help fund the Rs 102-lakh crore infrastructure funding, but hinted at a larger reliance on the private sector in doing so.

The government has utilised a clause under the Fiscal Deficit and Budget Management Act to have a wider fiscal gap of 3.8 per cent in FY20 and has committed to narrow it to 3.5 per cent in the FY21 budget.

Advocates of pushing up growth want the government to do more, while there are others who point out to the costs of a wider fiscal deficit like high inflation and also a higher cost of borrowing if the rating agencies downgrade India.

Sitharaman hinted that in the budget, the government has done all that it could on “loosening the purse” keeping the fiscal deficit in mind.

“We will have to see as it goes. I am not closing the options out. If there are more requirements, we are willing,” Sitharaman, who had taken a slew of measures between the July 2019 budget presentation and the full year one for FY21 in February, said.

It can be noted that GDP growth is set to slip to a decadal low of 5 per cent for FY20 as per official estimates.

The December 2019 quarter growth came in at 4.7 per cent as compared with a revised 5.1 per cent expansion witnessed in the previous three months and 5.6 per cent expansion in the same period of the previous year, according to official data released on Friday.

Sitharaman said she was not expecting a “shock” on the growth on either side and suggested that a rise in the number is a sign of doing well.

“If the ship is going steady and it is moving forward, I think that is the first sign of doing well,” she said, adding quickly that the economy is doing well given the difficult circumstances and this will make us go forward with more confidence.

To a question on the ways of driving of consumption, where there has been a fall in growth numbers, Sitharaman said there are multiple policies including the corporate tax cuts, personal tax cuts and direct benefit transfers, and stressed that the government is also pushing banks to lend more.

“We are pushing banks like never before to say reach out and lend to all categories (like) retail, agriculture, vehicle, home and so on,” she said.

Acknowledging that credit growth is yet to pick up, the minister made it clear that banks cannot be “wild” in writing loans and have been specifically asked to avoid the mistakes of 2008-09 when excess lending to pump-prime the economy resulted in issues of NPAs.

Meanwhile, to a question on how the government plans to garner the resources required for infrastructure building, she revealed that there is a move afoot to have a DFI which can be of help given the requirements.

“We are working to have some kind of a DFI but now with a slight difference,” she said, without revealing much on the contours of the plan or also the timelines.

She only hinted that the private sector will have a more important role to play in such a body being created, rather than the state-run nature of ICICI and IDBI till they were DFIs.

Till a DFI gets into the action, the government will depend on the Sovereign Wealth Funds and the National Infrastructure and Investment Fund promoted by it, she said.

On the coronavirus scare, Sitharaman said there is no need to immediately press the panic button at present, but added that industry executives have warned her about challenges cropping up if the crisis continues for three weeks.

A suggestion has also been made by the pharma and the electronics industries for an airlift of materials from China in case of a need, she said, making it clear that the companies will have to aggregate the goods and get it to a port.

Other details of the plan have not been finalised, she said, making it clear that this is merely a suggestion at present.

There is an opportunity for India to be a part of the global supply chain and investors at a G-20 meeting in Saudi Arabia recently were extremely positive about investing in India, she said.

On the Goods and Services Tax, Sitharaman said the focus is on making the network more efficient so that difficulties in compliance are done away with, and added that Infosys chairman Nandan Nilekani is helping her on the same.

“I am sure we will be able to drastically improve the functioning of the GSTN,” she said, adding that there is also a move to review rates on items only once a year.