The government is weighing the aggregate costs of stimulating the economy through additional caps and is likely to support the PMEAC’s view that the fiscal consolidation process should not be sacrificed. While a slight realignment of the fiscal deficit target of 3.2% of GDP could be attempted for fiscal year 18 (if fiscal revenues do not reach the target after GST deployment and supplementary demand for funds is high), there would be no a costly package dealt, a senior official at the Ministry of Finance told EF. Instead, the government would resort to select spending and pushing departments, especially those who manage infrastructure sectors, employment-intensive sectors and specific sectors of India, to ensure that allocations deliver results on the ground, he said. Scrutiny of the pace of spending would be intensified in schemes that serve as catalysts for rural demand, including rural roads, minor irrigation, and even the flagship employment guarantee program. Between April and August, the fiscal deficit hit 96% of the budget target of R $ 5.47 lakh crore. Official sources said there is a changing vision in the finance ministry that a package worth around Rs 40,000-50,000 million (about $ 6-8 billion), the maximum it could fix, could be inadequate to stimulate a $ 2.3 trillion significantly. At the same time, such a package could not end the fiscal consolidation energetically achieved in recent years, but would also lead to another set of problems, including higher inflation.
In that case, an already “rigid” monetary policy committee would become even more stubborn about an aggressive stance. Global rating agencies that have been less than charitable towards India may also tend to change their outlook on the economy. Even the spending apparatus is far from being solid to absorb any potential additional funds efficiently, sources added. In addition, the government feels that the worst is probably behind us. “There is an opinion that the economic slowdown may have bottomed out. So we have to be very careful to move forward with the stimulus,” said one of the officials. GDP growth hit a three-year low of 5.7% in the first quarter, fiscal year18. The Ministry of Finance last week began the formal consultation exercise with different departments for the 2018-19 budget. You will also have a clear idea of the additional funding demands of various ministries in mid-November.