The government will boost spending on building infrastructure next year even as it continues to strengthen state-run banks, widen the tax base and rationalize taxes, said finance minister Arun Jaitley.
It will also continue to push through structural reforms, Jaitley said on Thursday at the annual meeting of lobby group Federation of Indian Chambers of Commerce and Industry.
The finance minister’s comments come weeks before the Union budget will be presented on 1 February, the last full budget by the National Democratic Alliance government before general elections in 2019. On Wednesday, Prime Minister Narendra Modi also reiterated the government’s commitment to pushing through more reforms.
“In 2017, India has seen more structural changes taking place than any time in the recent past. The changes in 1991 were more out of compulsion while the changes in 2017 more out of conviction,” Jaitley said, adding that there may be some short-term adverse consequences of the structural reforms undertaken by the government.
India rolled out the goods and services tax (GST), brought in changes to the insolvency and bankruptcy code to make it more effective and initiated the process of capitalizing state-run banks over the past few months.
Highlighting the steps taken to resolve the issues in the banking sector, including the Rs2.11 trillion capitalization plan for state-run banks, Jaitley said it remains an important unfinished item on the government’s agenda.
“Completing the unfinished task of strengthening state-run banks and resolving the bad debt problem is unquestionably one of the most important agendas on the table today. Lending capacity of banks is depleted because of NPAs (non-performing assets). Banks have a lot of liquidity on account of low-cost deposits but they are not able to lend because of capital adequacy issues,” said Jaitley. Bad loans of state-run banks were more than Rs7 trillion at the end of the September quarter, as per government estimates.
Jaitley also hinted that the upcoming budget could see the government increase spending on infrastructure.
“We have to keep the momentum going on infrastructure creation, including rural infrastructure. Therein lies the core of India’s future growth story,” he said, flagging areas such as railways infrastructure including trains and stations, urban infrastructure, water, housing and sanitation.
Jaitley added that the government will strive for greater formalization of the economy, further rationalization of GST and expansion of the tax base to enable reduction in both direct and indirect tax rates.