BJP leader Arjun Jaitley, who is all set to take over as the new finance minister, has a tough task awaiting him at the North Block. Having almost about one-and-a-half months before he tables his first general budget at his disposal, Jatiley faces challenges such as sub 5% growth, price rise, Rs one lakh crore pay-outs and liabilities carried over from the previous regime, fiscal deficit, and bad debts worth Rs 2 lakh crore in the banking system – in effect, an economy in a complete disarray.
In addition to the macro-economic malaise that Jaitley inherits from his predecessor, former finance minister P Chidambaram, there is yet another responsibility on his shoulder entrusted by his party. BJP president Rajnath Singh, who was sworned in as a cabinet minister in the Narendra Modi government has already announced that the party will take definite steps on the Indian black money stashed abroad. He had said the government would bring back the black money in 150 days.
The government is staring at payouts worth almost Rs one lakh crore carried forward from the previous regime. The liabilities pertain to the compensation for the central sales tax to the states, which the ministry, under the UPA rule, has stopped paying to the states since 2010. Finance minister sources tell dna that it now amounts to Rs 50,000 crore to Rs 60,000 crore. Another payout is Rs 35,000 crore worth under recoveries to the oil marketing companies, which was supposed to be paid in the last quarter of the previous financial year, but got carried forward to the current financial year.
Economists believe that macro-economic concerns, reviving the investment sentiments and tackling inflation should be the top priorities for Jaitley. Economist Bibek Debroy told dna, "Economy is in a bad shape in terms of GDP, inflation and fiscal consolidation. Addressing these should be the top priority for the next government."
"The next government will inherit an economy with two major problems. The first one being continued weakness in the investment cycle and loss of investor confidence. Second, worsening of food inflation due to poor monsoon," said economist Rajiv Kumar.
Now consider this. Wholesale Price Index based Inflation has gone up to 5.20%, compared with 4.68% in February. Food inflation too is soaring over 9.10 per cent. To make the matters worse, the meteorological department has predicted a below average rainfall in the monsoon season. This will cause the food price inflation skyrocket. Experts, who are unanimous on the fact that the next government is going to inherit an economy in a poor state, stress on immediate need to tackle inflation and investor confidence.
Growth has come down to sub 5% levels and fiscal deficit (difference between the total earnings of the government and the total expenditure) has is seen widening to 4.6% in 2013-14.
"On food inflation, the new government should form an empowered group to look into the causes of food inflation and take a considered decision and not a knee-jerk recommendation of the short term food supply problems," added Kumar.