You are using an older browser version. Please use a supported version for the best MSN experience.

Narendra Modi ready to take unpopular steps to bolster finances

LiveMint logoLiveMint 16-06-2014 Kartik Goyal

Mumbai: Prime Minister Narendra Modi said he’s ready to take unpopular steps to improve the nation’s economy and fiscal health as his three-week-old government prepares to unveil its first federal budget next month.

“It’s necessary to take steps to improve financial discipline and improve the economic health of the country,” Modi said on 14 June in a speech in Goa that was posted on his website. “I know my popularity might go down due to these hard decisions, people might be annoyed with me, but they will appreciate it later.”

Modi faces the challenge of reviving the country’s economy after his party became the first in 30 years to win a parliamentary majority in India. Growth is holding near a decade low and retail inflation has averaged about 10% in the past two years, eroding the purchasing power of more than 800 million people.

“Modi’s comments suggest the seriousness the government is attaching to the fiscal correction,” N.R. Bhanumurthy, an economist at the National Institute of Public Finance and Policy, a government-backed research institute in New Delhi, said by phone. “Fiscal indiscipline has been one of the main reasons behind India’s economic woes.”

The rupee, which has gained 2.9% this year, fell 0.4% to 59.9837 per dollar at 9:30am in Mumbai on Monday, according to prices from local banks compiled by Bloomberg. The yield on the government bond due November 2023 rose to 8.63% from 8.60% on Friday and the S&P BSE Sensex index retreated 0.2%.

Budget deficit

Finance Minister Arun Jaitley said on Sunday that high inflation and slower growth had hurt tax revenues. The previous government estimated that India’s budget deficit will fall to 4.1% of gross domestic product in the year through March 2015 from 4.6% the previous year.

Any kind of fiscal indiscipline at this stage will put us in further doldrums, Press Trust of India quoted Jaitley as telling reporters on Sunday in Kashmir.

India’s consumer price index jumped 8.28% from a year earlier in May, a three-month low, Central Statistics Office data showed last week. Wholesale price inflation is forecast to accelerate 5.34%, according to the median estimate of 37 analysts in a Bloomberg News survey.

Bitter pill

The Reserve Bank of India held the benchmark interest rate at 8% on 3 June, and said risks to its target of containing consumer-price gains to no more than 8% by January 2015 remain broadly balanced. The economy grew 4.7% in the year ended 31 March, after a decade-low expansion of 4.5% the previous year.

Modi faces the challenge of cutting fuel subsidies, allowing more foreign investment and pushing through projects that had been stalled due to delays in approvals. He campaigned on his record of delivering economic growth as chief minister of Gujarat and promised to stem consumer-price gains.

“To take the country out of its economic ill-health, taking hard decisions and administering a bitter pill when required will be necessary,” Modi said in the Goa speech. Bloomberg

More From LiveMint

image beaconimage beaconimage beacon