Up on the Raisina Hills, top officials sitting in at least one of the colonial structures that house key government ministries, must be breathing a sigh of relief. At a time when budget preparations for 2015-16 in the North Block have started, finance ministry mandarins are confident that the country will better the macroeconomic targets as they expect the government to save almost Rs 55,000 crore on the fuel subsidy, on account of low global oil prices.
With the current account also getting a significant boost from reduced oil import bills, the curbs imposed by the UPA government on flat screen TV imported from South East Asian nations may also go. Gold, however, will continue to be discouraged.
More than the Jaitley effect, it is a combination of factors that are helping the government steer the economy out of the macroeconomic mess it inherited from the UPA.
So, how much has the govt saved?
"A senior finance ministry official told dna, "A comfortable global oil price situation is helping the government take up key reforms. With oil prices at $83 billion, the government will be able to save at least Rs 55,000 crore on fuel subsidy – something which will lower our deficits and provide the government more manoeuvrability on social sector spending. With this, upstream companies will also be focusing more on their investments and expansion."
Are there other factors helping the govt?
Another major factor helping finance minister Arun Jaitley is the additional cushion that the government has got on the current account front, owing to reduction in import bill, and foreign exchange reserves, at $11.2 billion, showing an uptick every quarter. Even though the government
is watchful of the current account deficit, certain moves are being considered. "Duties on the flat screen TVs are being reviewed. If plausible, some relief might come to consumers."
What about gold imports?
The government is wary of relaxing gold imports, especially because of its impact on the current account deficit. The CAD has widened to 1.7% of the GDP at $7.8 billion in the first quarter of the current financial year from $1.2 billion in the quarter before that. Curbs were imposed on
gold imports at the height of the rupee devaluation crisis when the CAD was $22 billion – 4.8% of the GDP. On gold, the government is adamant that there will not be any cut in duty structure. In fact, let alone any reduction, the government is considering ways to de-incentivise gold imports even more. Noose has been tightened against smugglers as well. Compared with 70 kg of illicit gold caught at the airports in the country in the first half of the last financial year, the customs caught hold of 604 kg in the first six months of this fiscal.
Will all this help govt meet deficit targets?
Finance ministry officials claim that these savings will significantly improve deficit targets. "We will not only be able to achieve the targets but also may be able to better them." The fiscal deficit target for the current financial year is 4.1%.
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