Jaitley Says There Are Some Economic Challenges That “Cannot Afford To Wait”

Finance Minister Arun Jaitley said while an outgoing government usually presents in interim budget in an election year, the larger economic situation dictates what goes into it.

“The convention has always been that the election year budget normally is an interim budget and ordinarily there should be no reason why we should move away from that convention,” Jaitley said video-conferencing from New York at CNBC-TV18 annual India Business Leader Awards. “But then the larger interest of the economy always dictates what goes into that interim budget. That’s something which really can't be disclosed or discussed at this stage.”

There has been speculation Narendra Modi’s administration is considering at least three options to address India’s agricultural distress, including a cash handout for farmers. The plan comes soon after ruling Bharatiya Janata Party was voted out in three key state elections in December last year.

Jaitley admitted that the farm sector is indeed facing challenges and it is the kind that needs immediate redressal. “Therefore, whether it is a situation like a natural calamity or a drought or stress in a particular sector—these are all areas which cannot be considered any kind of populist expenditure. Markets will never understand if you act for the sake of populism,” he said. “But if it is in the larger interest because of a compelling situation that develops, I think then it is a rational, logical thing, which markets will also understand.”

However, any relief the government may be planning could come at the cost of fiscal discipline. India’s fiscal deficit has already reached 114.8 percent of the budgeted target in November. Economists have suggested that the government may not be able to stick to its target of keeping the deficit within 3.3 percent of the total gross domestic product.

Jaitley said that fiscal prudence and discipline in an economy is always rewarded in the larger context. “Of course, there could be unusual situations where you will have to fill the gaps in certain areas where you have to increase expenditure. But so far we’ve stuck to that line,” he said. “Deviations are possible only if extraordinary circumstances exist.”

The finance minister, who is on a personal leave for two weeks in U.S., said the Modi government’s effort has always been to keep fiscal deficit on a glide down path. He added that any fiscal slippage has consequences for the currency, inflation, investments and the country’s investment rating.