Top three challenges for Union Finance Minister Arun Jaitley

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Top three challenges for Union Finance Minister Arun Jaitley

Union Minister Arun Jaitley resumes charge as the finance and corporate affairs minister after a gap of more than three months. A look at some of the key challenges he faces to ensure macro-economic stability.

1. Weakening currency

The Indian rupee has weakened by more than 9% in 2018 vis a vis the dollar. It has also weakened the most against the dollar compared to other Asian currencies. A weak rupee, along with the volatile oil prices, has the potential to exert pressure on the trade deficit and consequently the current account deficit.

Economists expect the current account deficit to widen to 2.6-3% of gross domestic product (GDP) in 2018-19 as against 1.9% in 2017-18

2. Fiscal deficit under threat

The government’s fiscal deficit target of 3.3% of GDP is under pressure. Tax revenues from the goods and services tax are yet to stabilize with the actual collections lagging targets so far. In addition, the recent rate cuts on many items effective 27 July will further impact revenues and probably offset the improvement in collections on account of better compliance.

The disinvestment target of Rs 80,000 crore also looks difficult to achieve with the Air India privatization falling through.

Expenditure squeeze is also difficult ahead of general elections due in 2019.

The only silver lining so far has been the good growth in direct tax collections.

3. Defending government’s track record on growth

A recent draft report of the National Statistical Commission calculated GDP based on the base year of 2011-12. The back series GDP data showed that the Indian economy grew by over 10% twice during the tenure of the Congress-led United Progressive Alliance government’s tenure with the average growth being over 8% in this 10 year period. In contrast, the growth in NDA’s four year tenure averages 7.3% adversely impacted by demonetization that adversely impacted growth.

Jaitley will have the challenging task of defending the NDA’s growth record ahead of the 2019 polls.

source: livemint