The focus has to be on reforming PSU Banks and managing fiscal situation both at centre and states.

The fiscal situation in the country continues to be under severe strain, and with the impending general election, there is a severe danger of setting the clock back. The finance minister has continued to assert that the fiscal deficit target for the year will be complied with. The GST collections have lagged the budget estimates. The government will minimise the shortfall by claiming undistributed collection of cesses and IGST. There will also be additional allocations needed for Ayushman Bharat, additional food subsidy bill due to higher minimum support prices, more funds may be injected to Air India and additional provision may have to be made for MGNREGA.

The fiscal situation of the states is likely to turn fragile. The farm loan waiver poses the greatest risk to fiscal consolidation. As the states have to seek permission of the Centre to borrow, limiting their borrowing to conform to FRBM limits will crowd out capital expenditures which will have adverse effects on growth. Already, there is additional outgo on account of UDAY, and escalation in subsidies and transfers is the last thing that is needed now.

Read the full article on The Financial Express here.