File image of Arun Jaitley. (Image: PTI)
New Delhi: India Ratings & Research, the Indian unit of the Fitch Group, has said that the major dilemma facing Finance Minister Arun Jaitley will be whether to provide a fiscal stimulus to offset the effects of Demonetisation.
India Ratings said in a report that the “Indian economy was cruising well till the tsunami of De-legalisation of high denomination currency hit the country.” It added that “the limited availability of new currency has caused significant disruption to the economy.”
India Ratings estimates that GDP growth in the current fiscal year will decline to 6.8%, a full percentage point from an earlier estimate and the adverse impact may flow over into FY 2017-18 as well.
India Ratings Expects the Budget to focus on:
• Growth enhancing policies
• Steps towards implementation of GST
• Steps to attract investment
• Steps to improve quality of education
• Steps to boost revenue
• Improve ease of doing business
• Steps to improve capital inflows
With growth expected to fall the government’s tax collection may be lower. With the scope for a stimulus from the consumption or investment side limited, the only alternative is for the government to increase its spending which will compromise the fiscal deficit target.
India Ratings adds that “any move in this direction will have its consequences”, hinting at a possible impact on India’s sovereign ratings.
The report also opined that in all likelihood, GST will miss the targeted implementation deadline of June 2017.