‘Govt Committed to Fiscal Prudence, No Giveaways Bordering on Populism’
The budget is strong on reforms, built on strong macroeconomic parameters and is also strong with regard to fiscal numbers
Economic affairs secretary Shaktikanta Das, one of the key architects of the budget, said in an interview with ET’s Deepshikha Sikarwar and Vinay Pandey that the government is committed to fiscal prudence and that he expects interest rates to decline. Edited excerpts:
There was a strong anticipation of giveaways after demonetisation. You have resisted that… The government was and the government is committed to fiscal prudence. So giveaways bordering on populism are something which the government does not believe in. Instead of giving out doles, the government believes in spending that money in productive sectors like infrastructure, consisting of let’s say the railways, the roads or irrigation. Productive expenditure has a multiplier effect to create more employment opportunity and augment growth. Once you give out a dole, it is one-time dole; it’s finished; then what? If you have to pull people out of poverty, then you need to create productive assets, create an environment where there will be more job opportunities.
Do you think budget has set the stage for lower interest rates? A lot of money has come into the system. We are looking forward to a regime of low interest rates and sufficient liquidity in the banking system thanks to demonetisation. And also now, government’s open market borrowing has been reduced. If anything, I think interest rates will move southwards. The budget is strong on reforms, built on strong macroeconomic parameters and is also strong with regard to fiscal numbers.
You’ve deviated slightly from the fiscal deficit path. Since there was consensus on a fiscal boost, should you not have taken more space? I would not look at it as a deviation from the fiscal deficit path. We have mentioned the NK Singh committee report. They say that debt sustainability, that is 60% debt, should be the underlying anchor. Based on that goal of 60% debt for general government in 2023, they have said it should be 3% deficit for the first three years, that is next year onwards. The debt to GDP for FY18 is 44.6 or 44.8% of GDP. Within this fiscal deficit, instead of 3% for three years, we have done 3.2% and 3%. So we are moving gradually in that direction with a clear commitment that it will be 3% in 2018-19 and even during the current year it will be our endeavour to improve upon the fiscal numbers. We would like to improve on 3.2% — it all depends on what kind of revenues we get out of this huge amount of cash which has come into the system. The quality of expenditure also has to be kept in mind. The implementation, the execution of various works, have improved over the last two, two and a half years. In roads, we have given one example, like per day the average was so much. This year, it is 133 km in PMGSY (Pradhan Mantri Gram Sadak Yojana). So pace of execution, pace of implementation has improved, but that cannot be also exponentially multiplied in a single year. There is a certain capability to spend. So based on that, the allocations have been made — what can be fruitfully implemented in a manner that the quality is not compromised.
Private investment is yet to kick in. How will the budget help? When the economy grows, naturally there should be more appetite for investment. Last two years we have been maintaining 7.2, 7.6% growth. This year, we will have to wait for the numbers but next year the economy will come back to normal growth. The government’s responsibility is to provide an enabling environment where private investors can invest. The government is continuously improving the ease of doing business. The hassle-free environment for industry, the abolition of FIPB (Foreign Investment Promotion Board) itself is a big step so that investments take place faster. But many of the large companies have their own problem in terms of their own earlier borrowing and the debt burden. Slowly many of them are coming out of that kind of baggage. Also the railways’ expenditure, the spending on highways should help. Corporate tax being brought down to 25% for companies with less than ₹ 50 crore turnover will improve their balance sheet, leave them more surplus resources, which they should be in a position to invest, modernise, expand capacity. That should play a positive role.
You have not budgeted for any upside in the revenue from the note-ban scheme. Will that come in before the end of the fiscal year? Normally, people who come under the scheme, like the Garib Kalyan scheme, more than 90% do it on the last 10 days. So therefore, what is going to be the response we will know perhaps from March 15-20 onwards. Therefore, very difficult to estimate how much people are going to declare. Then of course, based on the data which is available after this period is over, the department will initiate action. Depending on how much extra money comes before March 31, we could always sort of postpone some of the other receipts or we can decide on advancing some of the expenditure of next year also — that can be done.
JOURNEY AHEAD We’re looking forward to a regime of low interest rates, sufficient liquidity in banking thanks to demonetisation
The twin balance sheet issue of indebted corporates and bad loans of banks was flagged by the Economic Survey as well. The budget has only set aside ₹ 10,000 crore for banks… There is another announcement with regard to listing of security receipts (securitised bad debt)… That will make it tradable and bring in additional resources to asset reconstruction companies which should be able to resolve many of the stressed accounts. Now the action lies with the banks to implement the various frameworks which RBI has offered.
FIPB has been abolished but what about overseas investment in sensitive sectors? There will be some sectors up to some percentages which will require government approval. In such cases, the approvals can be delegated either to the concerned ministry or the regulator. There is already a list of countries which require security clearance — there are two or three sectors like defence or telecom where security clearance is required. In such cases, they will get security clearance directly from the agencies. It comes to MHA (ministry of home affairs), so they will get it from MHA.
The budget announced the idea of attaching the properties of economic offenders who leave the country. How is this going to work? We are exploring two possibilities. One is amending some of the existing acts. The other option is to come out with a new legislation. The work has started. The idea is that (for) such persons, whatever assets they have in India will be confiscated till he comes and submits to the relevant legal authority.