I’m not in Desperate Situation in terms of Fiscal Deficit – Jaitley – I won’t decide; I would first take some expert opinion—look at models internationally and then some back to it.
Finance Minister Arun Jaitley spoke to A K Bhattacharya, Editor, Business Standard, at a show today on Lok Sabha TV, shortly after presenting the Union Budget 2016-2017. Here are the transcripts:
Question – This year’s nominal growth your Budget projects at 8.6%. And for the next year your nominal growth projection is 11%. And this year the revenue growth has been around 17%, whereas next year it is projected at 11%. I am also drawing your attention to the fact that on the services tax revenue front your Budget is showing a growth rate of 1%. So can you just take us into these numbers—are they on the lower side, are you being conservative or modest?
Answer – I would rather be conservative and improve. Now the current year is an exception, I am conscious of that because oil prices falling to 30-32 dollars then obviously I was able to pass part of the burden to the consumer, part of the burden I took as cess etc, which I was able to spend on infrastructure. If the growth is about 13% plus/minus, the rest came by way of additional revenue measures. And those additional revenue measures help us.
Maybe that luxury is not available in the next year, because you don’t know how much oil prices would go down. It’s a matter of speculation but you have to have a fair assessment on that. Therefore you assume you would collect as much as you did in this year, plus a little more.
I think as far as the next year is concerned one of the reasons why the nominal growth has been of concern is that for 15 months WPI has been in the negative and therefore when you average it with CPI—that’s the formulation the economists follow—even though your growth rate is 7/7.5%, your nominal growth during UPA would be 12 and 14%, turns out to be 8.6 now because the inflation index is very low. So it will all depend on what the inflation index and therefore we have taken a moderate 11% growth. If we are able to collect more than of course we will be able to reach that target very comfortably.
Question – There are two areas of concern: one is the limited period tax amnesty which you have announced and that the tax holidays will continue. Do you think you are creating some sort of a moral hazard? Second, your promise of reduction in corporate income tax cut which you made in the last Budget and of phasing out exemptions. Could you have gone a little more on that path?
Answer – First of all, let me explain to you a very important tax. There are monumental income tax law changes that I have made. First on the schemes. It’s not a VDIS, it is not amnesty. Inequality arises in an amnesty—you as an honest tax payer have paid 30% and I come as Johnny-come-lately and after 20 years I say I am also paying 30. You as an honest taxpayer have ended up paying more. So at current values I have to pay 45%. This is not amnesty, the ‘96 scheme was structured that way; this is not structured that way. Its 30% tax, plus seven and a half, plus seven and a half, which is 45. So I am ending up paying one and a half times more.
So you are paying penalties for not having paid tax in time. So there is no amnesty. This is intended to get some money outside the system into the system. In the second scheme I have, in direct taxes if an appeal is pending, pay up to a certain point principal, tax, plus interest till the date of assessment. If it is a higher amount in some cases, 25% penalty. And you can sort you past tax problems out. Similar schemes for customs, excise and service tax. If there is an issue of retrospective tax pending, no interest, no penalty, pay the principal amount. So I have tried to clean up the whole book.
Then as far as the ordinary tax payer is concerned, I think the most important aspects besides giving some deductional advantages to small taxpayers, moving on in several cases to presumptive taxation. Small businesses, traders, shopkeepers, on 8%, get your deductions, pay the tax, no books required. If you want to pay less then we take the books.
All professionals, and there is a large amount of provisions in all professions, the presumption is 50% presumptive tax. Actually these categories will get a huge advantage of paying that, comply with the government and build up their capital. Between the service class tax payer and this class—which is the bulk of our tax payers—it would be a simple one page return and you wouldn’t have to see the tax office in your life… unless of course there is no fraud involved.
The second question was with regard to corporate tax. Governments over the years have promised exemptions. If I had withdrawn those exemptions prior to the sunset clause, I would be accused of retrospective change. So I have now given notice of phased reductions that start next year. So next year I will start getting the benefit of exemptions being diluted. This year I don’t have the befit of any exemption being diluted.
Question – Mr Jaitley, there was a lot of speculation about fiscal deficit targets. Why haven’t you relaxed the fiscal deficit targets?
Answer – I consulted a huge cross-section of opinion, the industry by and large was in favour that you spend more, most politicians were not concerned whether it was 3.5% or 3.7. The economists were a divided house, but the predominant opinion among the economists was that you gave a pause last year now you cant be the fastest growing economy in the world and with oil prices in their 30s you still say that I cant maintain fiscal discipline in this country. You cant do it two years in a row. I think two things are extremely important: first is not that you maintain fiscal deficit—it’s the quality of fiscal deficit.
The UPA also maintained a certain figure for several years, but they did it with huge cuts. There are two ways in which you can maintain fiscal deficit. Either you earn more, or you spend less. They maintained it by spending less. When you spend less you compromise on growth. After years the revised estimates are going to be higher than Budget estimates.
So we have spent more, we have earned more, we have maintained the fiscal deficit of 3.9—therefore the quality of fiscal deficit is very high, it’s not achieved by sending less and that’s why it’s contributing to some growth. Having got the benefit of low oil prices and various other factors when we totalled up with some difficulty the highest we could make it and we haven’t compromised on expenditure. I keep my fingers crossed whether by the end of the year we will reach that.
But while I was discussing with some eminent people whose wisdom I respect there was a suggestion, does India need a single point fiscal deficit or could it be a range. Could we have said it is between 3.4 and 3.6? So you have some flexibility—you don’t cut down on pro-poor schemes etc. I thought it was a point worth consideration. So whereas for this year I would stick to 3.5, for the future we have the wisdom of some expert opinion that could it be a narrow range? Because today it is no longer an alarming fiscal deficit, like 5 point something. Therefore could we have the luxury of that range? I won’t decide; I would first take some expert opinion—look at models internationally and then some back to it.
Question – You made two announcements which your critics will describe as ambitious. One was your disinvestment targets. You had a disinvestment target of Rs 69,500 crore, you did not meet the target for the current year and end the year with Rs 35,000 crore and there is no strategic sales. You have proposed to raise Rs 55,000 crore next year. The second one is about the consolidation of banking in public sector space.
Answer – As far as disinvestment is concerned, this was a very difficult year, you had a turmoil in the markets. Therefore, the stocks which were impacted the most were oil, metal and commodity stocks. Now, I am not in a desperate situation in terms of my fiscal deficit that I must sell at rock bottom prices, after all, this is public property. The prudence was I stopped, so we will make Rs 23,000-24,000 crore this year. Remember though we had strategic sales in NDA 1 of a total of Rs 26/27,000 crore, in the first one and a half years, I have been able to sell more than Rs 40,000 crore without any controversy.
Therefore, am still continuing, last week we had NTPC. Probably, in March, we can look at more areas. We will divest, we have also have strategic sales plus asset diversion. If a PSU has several units, can you dissect one, which need not be a PSU. Globally, this is called asset recycling. The company will get more money by selling it to a private player and the money it gets it might set up two more plants in some more fruitful areas. This is asset recycling and I have said, we are going to consider this as an option. I have set up an ambitious target and if markets are not as choppy, we will probably be somewhere be close.
Question – About banking consolidation, does it mean winding up banks that are not viable…
Answer – No it doesn’t mean that. I have asked for bringing below 50% only in the case of in IDBI, for the rest, 52% government holding remains.
The first step is to improve balance sheets of these banks. They got adversely impacted because of management issues as also some sectoral issues. We have been trying to address the issues in most of these sectors – be it steel, power, sugar and road. Infrastructure projects, I have brought three proposal to settle dispute so that projects don’t remain standstill. One of the measures is legislative.
The effect of all this will be — first bring health back, then in some cases a weak bank and a strong bank, subsidiaries and the parent bank and these are all options. India still needs public sector banks. But do you need so many of them and some of them weak? Or you need fewer in number and strong banks? That’s what I spoke of when I talked of consolation. This consolidation is not an alternative to improving the balance sheets.
Question – In the current year, transfer to states from central revenues has actually gone down by 4% compared to what you had projected. What could be reasons when you read this along with the new cess that you have introduced…
Answer – Numerically, the states have got much more. In percentage, it may make a little difference because states don’t get a part of the cess. Of course, if you look at the cess such as irrigation cess etc, these are items, Centre has to spend. It is the Centre’s responsibility…it has to fund the states, spend more, maintain fiscal deficit and it can’t manufacture money. Therefore, Centre has to devise various methodologies of getting this resource. So, numerically, the states have got much more, the percentages can vary because of the cess issue.
Question – On the subsidies front, international crude oil prices have come down by 70% in the last one year. You have rolled out direct benefit transfer scheme very effectively across the country. One had expected that the subsidy bill will come down this year, but it has more or less remained the same. For the next year, actually you are projecting a minor increase. What is the mathematics behind it?
Answer – On petrol and diesel, the subsidy is off. LPG, it is significantly reduced because of direct benefit. Now, there are three big subsidies left – the biggest one is food. The way the Food Security Bill is increasingly notified, the quantum of subsidy increases. The second is going to be fertilisers and the third is kerosene, which becomes a fuel for poor man but there is also a diversion that takes place. I have announced two important initiatives, one is the legislation that will enable us to target subsidies. Second, I am trying a pilot scheme on fertilisers. Don’t want small farmers to suffer by fertilizer cost going up. We still need to subsidise them because farm is a distressed sector. I can’t withdraw it from there. So it will remain. But can it, by a better transfer model, reach the actual beneficiary and also save some money for the government.