The only way for the government to meet the fiscal deficit target will be by cutting the capital and planned expenditure, India Ratings said.
Attaining the fiscal deficit target of 3.9% of gross domestic product (GDP) looks difficult, India Ratings and Research said on Friday. The ratings agency believes that the fiscal deficit target may only be met by cutting capital and planned expenditure.
The Government of India sees its fiscal deficit target of 3.9% of GDP for 2015-16 as achievable, the Economic Survey 2015-16.
According to India Ratings, the Economic Survey projects growth in FY17 at levels similar to the current fiscal, which indicates that the Survey is not expecting flagship programmes of the government namely Make in India, Digital India, Startup India, etc., to add anything incremental to the economy in FY17.
After a 7.2% economic growth in 2014-15, the economy is expected to grow at 7.6% in the current fiscal, the fastest in the world.
However, there could be some slippage in the fiscal deficit in the near term, the Survey said. "India's fiscal space is constrained," the Survey noted. The Survey also said that the 7th Pay Commission payout and One Rank One Pension (OROP) is expected to put a burden on spending in FY17.
"Neither is the Economic Survey 2015-16 expecting a push to consumption from the implementation of the 7th Pay Commission," India Ratings said in its statement.
The current fiscal (FY16) until now has witnessed a lower oil subsidy outgo and a healthy rise in excise duty collection, which will help the government’s finances, however, it is unlikely to offset the shortfall in revenues from disinvestment and the higher food and fertiliser subsidy, the ratings agency noted.
India ratings said, the only way for the government to meet the fiscal deficit target will be by cutting the capital and planned expenditure, which has been the case in the past. The agency believes this, in turn, will have an adverse implication on the GDP growth of India in the medium term.
On employment opportunities
Besides growth, the other big challenge is how to reorient the growth process to create more employment opportunities for the Indian youth, India Ratings said.
The Economic Survey 2015-16 states that the labour force participation rate is higher in rural rather than urban areas. It also notes that unemployment rate in rural areas is 4.7% and in urban areas is 5.5%. These statistics, however, do not reveal the extent of underemployment or disguised employment, cited the ratings agency.
Moreover, the rate at which youth are entering the labour force every year the situation of employment is only getting worse, it said. The job reservation related protest/agitation in Gujarat and Haryana is indicative of this fact, it added.
The government's Skilling India initiative via schemes like Pradhan Mantri Kaushal Vikas Yojana,Deen Dayal Upadhyaya Grameen Kaushalya Yojana or National Rural Livelihood Mission is an important step in making youths employable and it will be more important to create ready employment to reduce the heightened rural distress due to two consecutive monsoon failures, it noted.
The ratings agency hopes that Budget 2016 will acknowledge this and use the Mahatma Gandhi National Rural Employment Guarantee scheme to do so.
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