Jaitley's comments reinforced expectations that he will curb the
state's subsidy bill while taking advantage of the strong stock
market to raise more than $10 billion by selling stakes in state
The benchmark BSE index rose as much as 1.1 percent to a record high
of 25,810, surpassing its previous life high of 25,735.87 hit on
June 11. The NSE index too rose 1.1 percent to 7,718, also an
Economists do expect some slippage in the headline budget deficit
that Jaitley inherited from the previous government due to a weak
economy, but say the asset disposals should avert any need to resort
to bigger borrowing.
"(The) fiscal deficit is a major challenge," Jaitley told an
audience of accountants on Tuesday evening. "Now India needs a
certain amount of fiscal discipline... there is hope that bold
decisions will be taken now.
"If you indulge in mindless populism, you burden the exchequer," he
added. "It does not work."
Prime Minister Narendra Modi's nationalist Bharatiya Janata Party (BJP)
swept to power in May with a promise to revive the economy and
create jobs after the longest spell of growth below 5 percent in a
quarter of a century.
That rate is too slow to create jobs for the 10 million Indians who
enter the workforce every year. Modi's new government has also had
to contend with a food price scare just as a weak start to the
monsoon delays planting of summer crops.
India's wholesale price inflation hit a five-month high of 6.01
percent in May. Meanwhile, headline inflation has stabilized but "is
still beyond the acceptable level", Jaitley said.
The budget is the government's first chance to implement its agenda,
and investors were impressed by Jaitley's hawkish tone. Wednesday's
rise in the BSE Index <.BSESN> extends its gains for this year to 22
"The statements and the body language indicate that they are here
for the long run," said Jagannadham Thunuguntla, head of research
and chief strategist at SMC Global Securities Limited.
"The government is giving the right messages and the market has
taken it in its full spirit. We may not see all announcements in one
shot in the budget, but the messages in between the lines are more
The interim budget set by the previous government in February set a
deficit target of 4.1 percent of gross domestic product for the
financial year that began in April.
[to top of second column]
But, in an indication of the challenges Jaitley faces in balancing
the books, the fiscal gap has already risen to 2.4 trillion rupees
($40 billion), or 45.6 per cent of the full-year target.
"We can have a higher deficit number, possibly at 4.42 percent (of
GDP) without disturbing the borrowing estimates," State Bank of
India chief economist Soumya Kanti Ghosh said in a research report.
Economists at Deutsche Bank Securities also forecast an upward
revision in the deficit target to 4.3-4.4 percent of GDP, assuming
record revenue of 600-800 billion rupees ($10 billion-$13 billion)
from the sale of stakes in state-run companies.
Finance Ministry officials are locked in pre-budget silence, meaning
that many details of the spending package are unlikely to become
clear until Jaitley addresses parliament on July 10.
But, sources say, work is progressing on plans to sell a 5 percent
stake in Steel Authority of India <SAIL.NS>, worth around $330
million. Disposing of the stake would kick off a series of deals
that could quickly raise funds and impose greater discipline on
India's bloated state industrial sector.
Trimming subsidies - particularly on energy - that cost nearly 2
percent of gross domestic product (GDP) will be another focus as the
government seeks to allocate scarce funds to growth-promoting
State Bank of India estimates that every rupee of capital spending
generates 2.45 rupees of GDP - two and a half times the GDP impact
of transfer payments.
That would buy time for the economy to recover and for the
government to widen its revenue base by bring in a general sales
tax, which economists at Deutsche Bank Securities expect to be
introduced in the 2015-16 fiscal year.
(Additional reporting by Indu Lal; Writing by Douglas Busvine;
Editing by Richard Borsuk)
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