Almost 10 days after the Budget, it looks like the budget has been well received. Everybody has called it balanced and prudent barring the opposition.. Most stakeholders whether it is markets or corporate India have voted in favour of the budget. They believe it was a balanced exercise. But one stakeholder, the RBI, seems to have turned very hawkish. Are you perplexed? Is this discouraging?
Normally I do not comment on the RBI’s decisions. They are a professional institution with a lot of institutional experience and we move on the assumption that they are best suited to take these decisions. And now we must bear in mind that this is a decision of the monetary policy committee and therefore they weighed all circumstances. Now two policies ago, they reduced the rates. Thereafter, immediately after the demonetisation exercise was over in January, the banks had taken some initiatives and that movement is on. Now RBI has followed a cautious approach but that is their prerogative. I think let us wait. This is not the last policy on the matter and it is an evolving situation.
You are perhaps being the gracious finance minister and not essentially saying that you are walking the talk on growth alone but I am going to point out what the markets have spent a little bit of time over which is, it is alright, they did not have to cut rates because the banks are doing their bit and lending rates have come down. But the change in stance has taken a lot of people by surprise. From being accommodative to being neutral essentially means that they are giving themselves elbow room to both reduce and hike rates if need be and I am presuming that is not the validation that you were looking for. They are saying fiscal prudence was very good but still they have not seemed to endorse it.
I can have my own assessment of the situation, particularly in view of the fact that not only is inflation within the range, it is within the 4% range. We have the flexibility from 2% to 6% but this one is at the moment a little below 4%. But then we must leave it to the RBI’s judgement. They know how to move the best and in case the situation evolves and changes, the RBI will certainly be moving along with times. There have been instance in the past where I would have said that my own assessment could have been different but then we do not express that ever because we leave it to the RBI’s wisdom.
The reason why I asked that question, it is no longer just one man’s discretion. This is the monetary policy committee (MPC) and the whole idea of appointing the committee which you eventually did was to have vibrancy of views and to have people who would bat for growth as well. While fiscal policy seems to be batting for growth, monetary policy seems to be very hawkish.
There is no reason for us to assume that the six members would not have discussed all these aspects. I am quite certain that within the committee meeting they would have discussed all these aspects and when they come out with a particular decision, that was the collective wisdom. It is not necessary for people to even annex contrarian views. They take a broad consensus. I really do not know how they have voted because those proceedings are still not out but I am quite certain that when six people with a certain amount of both academic and experience credentials meet, they would have taken in all the relevant considerations in mind.
Demonetisation paved the way for the banks to cut lending rates and we saw substantial cut of 90 bps, almost a percentage point cut there but many people believe that as remonetisation happens and MCLR goes up. banks may perhaps be forced to push rates upwards. Is that a concern you share?
I would personally always like the rates to moderate because once the rates moderate themselves they help us in grow, they helps us in increasing the amount of credit, increasing the amount of lending, making it more audible. I would personally prefer to see that but then the RBI has the onerous responsibility of balancing it with inflation and their own concerns. I am sure they have done a balancing act keeping in view what has happened over the last four months. So, let us wait and see how RBI proceeds in the months to come.
Unlike the former Finance Minister and your predecessor you do not believe the RBI is not believing in your budget and which is why they have taken this call?
I believe in communicating with the RBI and I will have my own style of dealing with the RBI.
Fair point indeed, but one last question before I move on to the budget per se. It has been 41 days since the whole demonetisation drive ended. It is a little perplexing that we do not have a final figure from the RBI just yet. Are you as disturbed about not having a final figure?
Not in the least.
The RBI’s final figure cannot be an approximation. The RBI has a huge amount of currencies of high denominational notes from all over the country which has come in. This is lakhs and lakhs of crores of rupees. Now unlike a broad assessment that they would give earlier, that in the current chest so much money has come in today, now they through machines count every note, take out a possible suspicious note or a fake note out and then put of the residual currency give the balance of how much really has come in. It is a huge exercise, it is not an exercise which can be over either in weeks or in a month or so.
It is an exercise which will take a reasonable amount of time, the RBI can give you at some stage an approximate figure but that would lead to a speculation. So, let us leave it to the RBI. Once that final tally is complete, only then they would give it to us.
Going back to GDP numbers and what you have projected, a lot of your budget mathematics this time around is based on the economic survey numbers which is not statistical data because there was not statistical data that was available. In that sense, did you find it tough to prepare this year’s budget given domestic factors like demonetisation?
I do think so. First of all, let me tell you on the GDP, demonetisation of this kind and a consequent remonetisation really has no fixed model, there is no rule book, there is no past experience and therefore there is a lot of assessments which economists have been making and various professional institutions have been making.
Secondly, there is a lot of counting that remains outside the GDP, particularly of the informal economy.
Thirdly, a lot of integration of the informal with the formal economy is taking place and therefore when you look at the formal sectors of the economy, you will find the figures completely different. Why should the airline traffic have increased in November and December? How has the sowing increased? How has the four-wheel sales increased? Then coming from the informal sector where the spending takes place, the two-wheelers sales have gone down. So you can see that particular difference.
Therefore if the World Bank, the IMF, the CSO, the chief economic advisor have all given their assessments, I broadly take the tenor of all these assessments that in the short run, you will have a squeeze and its impact but in the medium and the long term, the size of the formal economy will increase, the revenues will increase and the GDP officially will increase and that is a gamble. This is a factor which we factored in when we took this particular decision.
Now on preparing this year’s budget, I do not think this was as complex an exercise as has been made out to be. First of all, our revenue figures are intake, last two years we have grown by 17%, this year we factored it at 12%. This 12% does not take into account the revenue growth either what may come as additional dividend or the possible impact of demonetisation on tax collections which after a first few months could be significantly larger.
There is a second variable also which is once in the middle of the year the GST gets implemented, after the initial hiccups, the GST itself could lead to larger collections. Now both these factors we have not really taken the full impact of them.
You have been more conservative than…
Now what are the areas we had to spend on? We had to spend on rural areas and agriculture, we had to increase the amount of social sector spending, we had to increase the quantum of spending on infrastructure. The infrastructure spending is Rs 396000 crore. in the coming year. This is used to be the entire planned expenditure which the UPA used to undertake in a year.
And doing away with that discrimination has given you the flexibility?
And it gives us that flexibility. And then you decide the fiscal policy, the taxation policy accordingly which are the areas into which you can make the– I did not tinker with indirect taxes for the simple reason that after the first three months, in any case of the GST is to be implemented then there is no point increasing the indirect taxes for a period of only three months.
You have got a big thumbs up as far as doing a balanced budget is concerned and it will be frustrating for people to question the hygiene of your numbers. I am going to leave it at that but turning focus on spending, I buy your point that your intention is to spend more but data seems to suggest otherwise and just to quote Mr Chidambaram in parliament yesterday. As a percentage of GDP, spending is being contracted, that is the allegation that is coming in from the Congress Party. They believed it was 13.6%; in budgeted estimates for fiscal year 2017.
You have to relate it to the quantum of money which is available. If I spend beyond my means, than I land up at the UPA rate of fiscal deficit of 6.5% and I would not want to do that. So I had to maintain a certain amount of fiscal discipline consistently inheriting a bad quality figure of 4.6% of fiscal deficit just two-and-a-half years ago. We have gradually brought it down to 3.2%. We intent to move down further. At the same time, within the volume of taxes available, quantum wise, numerically it has to increase and thirdly, on spending, my track record is significantly different from what has happened in the past.
In the past, there was a huge difference between budget estimates and the revised estimates. Yesterday I cited figures to say that over Rs 1 lakh crore used to be slashed in the development expenditure each year to meet the fiscal targets. On the contrary, in the last two years my revised estimates are much more than my budget estimates and therefore I would rather be conservative and then err on the right side by spending more rather than just cutting and slashing expenditure at the end of the year.
As somebody who likes to be conservative, was it a frustrating exercise to go to 3.2%? Would not you rather have had stuck to 3% because it can be read as a sign of weakness?
One has to do a proper balancing act. Fiscal consolidation is necessary. You do not have to leave the next generation in such heavy debt because you want to spend a lot more today. The absence of fiscal consolidation and fiscal discipline sends a very negative signal into the market and if central government does not maintain that fiscal discipline, the states in any case are saying allow me to reach the RBM target and then there would be no end to it. Therefore you had to continue the downward movements. The markets were willing to overlook the difference between 3 and 3.2. In fact, in the year…
In You have outdone the market. They were expecting 3.4%, you have just done 3.2%.
In the year of possible GST and in the year immediately after demonetisation, when the world has slowed down and the need to spend is there, I think the target of reducing 0.5 in one year and then maintaining a pause at 3% was a little extraordinary and therefore instead of maintaining coming down from 3.5% to 3% we chose a more safer course, 3.5 to 3.2 and finally to 3%.
You have almost walk the talk as far as divestment is concerned. I think it is two days back you have sold about 2% stake in ITC which was held by a SUUTI. Will we see more stake sale that your hold in company via SUUTI?
You would for the reason. I always said that disinvestment is the art of the possible. You go in for strategic sales. You go in for asset sale. You go for buyback. You go in for selling a small percentage of shares into the market and you do it without stepping on too many toes.
What I learnt from the experience of the first NDA government was that in a period of five years at that government we disinvested about Rs 28,000 crore. Everyday there was some controversy relating to disinvestment. At the end of the day when 2004 election were held, there is a sizable vote amongst the working class that we lost which will be made too much noise of. Today we are quietly doing it without any controversy, without any confrontationist policies.
For example, this current year, in one single year I would have divested worth Rs 45,000 crore. We are almost close to Rs 40,000 crore at the moment. Next year, I have a more ambitious target and it is achievable for the reason that last year we took a decision to list the GIC companies five of them. Now under the SEBI listing guidelines, the government holding has now to come down from 100% to 74%. I already have an agenda where there are companies with very high valuation and this year I have said a lot of other PSUs including the railway PSUs are going to be listed. If IRTC, etc, is the most visited site in India, if it gets listed and its market valuations are taken, sky is the limit as far as that company is concerned.
Why should you not tap revenues that are readily available but is there so much appetite for government paper that could hit markets next fiscal?
The appetite of the market also has to be seen and our experience has been in all the divestments we have done so far that both domestic institutions, FIIs as also small investors have shown a lot of interest because a lot of these are very valuable shares.
CPSC is one of those things but the 2% stake sale in ITC for instance. There are two questions I want to ask you. One, LIC ended up picking it up. Would you want that trend to change and why should LIC come to the rescue all the time and the second thing is why keep your sacral SUTTI at all? Will we see the government divest SUTTI completely?
Well I am not going to make any comments on that because this influences the markets. As I said, it is an art of the possible and at this stage keeping these 2% shares, divesting it and at some subsequent stage, the LIC also takes commercial decisions with regard to how much to retain and when to retain and when to divest. That is a methodology of by which governments have acted in the past also.
Indeed you have brought in a lot of relief as far as corporate tax for the small and medium companies are concerned. It is the big business that is wondering when will you walk the talk that you promise in reducing is that on the table because you have got two years into the stint?
I have said that this will be coupled with the exemptions going out now let me make it very clear at the moment the exemptions have not gone out because I do not intend to lift the exemptions ahead of time. Today as far as the large companies are concerned, the average tax that they are paying is already around 25%.
Even at 22% or something.
They are not paying 30% and as far as the smaller 96% companies are concerned the MSME plus as I call it the average tax they are playing is 30%. So those paying 30% would be entitled to this relief and not those already paying 25%.
So is it fair to presume that for big business it is off the table till exemptions?
That is why the original decision was taken. I had never announced an absolute decision to be always linked to exemptions.
You have also made changes as far as the long-term capital gains tax on immovable assets are concerned. There is some parity between unlisted shares, immovable assets contrary to expectations in the market. You did not tinker with long term capital gains for listed shares. Is it imminent in the next budget?
Well I would not comment on that.
Or do you believe you did not want to rattle markets too much?
Well I would not comment on that because this can lead to any speculations.
I want to go back to a point that you made which is you did not want to tinker with indirect taxes because they will be GST may be three months or four months or five months down the line. In hindsight, do you believe because this budget also had to boost demand, you could have perhaps reduce indirect taxes in the interim before the GST happens?
For a period of three months, the impact would be insignificant and there was no point taking those insignificant demands. I therefore followed the alternative route of putting more money in the hands of some of the tax payers the MSME, the small tax payers etc. not only the small tax payers. You see if you historically see all the budgets in the last 70 years, the ext day’s headline used to be what will cost more. Now here I have not increased the burden on anyone.
You took away a big share of our TV screens.
Well I have not increased the tax on anyone and effectively almost every segment in the income tax bracket individual pays a little less. The smaller ones I have reduced it by half, those in the 20% and 30% bracket get a 12500 relief each and 12500 relief is an important relief.
When do you honestly see the GST kick in I know you have made significant progress?
We have made significant progress, we are meeting again on the 18th and thereafter we will have to have series of meetings. I intent to make an effort to take the legislations into parliament in the second part of the budget sessions and if we are able to do that the GST Council’s decision is the 1st of July and in any case you see the only debate therefore convey between 1st of July or 15th of September there is no room beyond that for the GST to be delayed.
I am going to ask you a very candid question. All your four budgets have been geared towards crowding in private sector investments. You have let public sector be the engine of growth with an idea to crowd in private investments but there is no sign of a spur in private investments. I am asking you two questions; is that frustrating and when do you see that happen because credit to industrials is negative and there is no gross capital formation?
This should also be a cause of introspection for what has happened which has led to this situation. One, it is the global situation where demand is low. I can understand that. It is a circumstance beyond our control or beyond the control of India’s private sector.
Two, during the boom period, the banks had lent indiscriminately to a particular group of private sector, large industries. Now most of them have surplus capacities and the demand is low and therefore their ability to invest more is lacking. Banks’ capacities, because their monies are blocked, are also squeezed and therefore in one sense it is that overlending by the banks and the companies expanding beyond their ability coupled with the continuous global slowdown that is leading to a situation where private investment is slow.
To that extent you are right, it could be frustrating. But then those in government have no right ever to feel frustrated. They have to act. Therefore we keep increasing public investment, we keep spending on infrastructure, we keep spending in the rural areas hoping that demand will boost up, we keep spending on various sectors so that which will spur some activity as far as the private sector is concerned, this is absolutely necessary under the circumstances.
A lot of people were surprised that for recap you have kept a very little amount. Is this because the bad bank is in the making that your CEA has been batting for?
As far as this Rs 10,000 crore is concerned, this is a part of the original Indradhanush scheme, 25, 25, 10 and 10. So, this year was a 10, if more is needed, we will try and make more available. But having said this, there are various options which we will try. Ultimately the banks themselves also have to act, the companies have to act and bring about settlements, transfer or ownerships etc, an activity which has started. Let the bad bank idea be debated but it should not lead to a situation where effectively it becomes an ARC run by the government. Today there are vibrant private sector ARCs, we have expanded investment into those ARCs, foreign investment is allowed etc and now some ARCs have started effectively functioning. We have not seen the full impact of that at the moment.
Now, in between, if the government jumps in and says I establish my ARC, then by next year you will have all these left parties and the Trinamool Congress and so on saying the ARC must be supported and the rehabilitation must come out of the budget because at the end of the day when government enters these businesses…let us say in the airline sector, there are private sector airlines, we are not supporting any one of them, we are not supporting any one of the airports. But because we run one airline ourselves it must be supported out of the budget because we are running the railways ourselves. Rs 55000 crore from the budget must go into the railways. So before we just take this as a slogan, we must be very clear that this is not going to be effectively some form an ARC supported by the budget itself.
If that is clear, I am quite willing to discuss this.
If you were not supporting the railways with Rs 55000 crore outlay, you could have perhaps cut my income tax a little. As a finance minister who is known to be revolutionary in that sense, is not privatisation of railways crossing the minds of your government at all?
There are some ideas whose time comes only at an appropriate time. Today you have already allowed private sector investment into infrastructure, you have outsourced various facilities, so now those kind of activities are on, let the consumers and the travellers get the benefit of those facilities. You have FDI which has been allowed into infrastructure, you have major international companies which are now going to be manufacturing you locomotives, the rolling stock is being manufactured in the private sector and at times, some of the platforms and the train services are also outsourced. We have gone so far over the last several decades. But the railways still continues to be with the government.
I will promise to read between the lines on that answer but jobs is another issue that bothers the government. While your intention has been to create jobs and your manifesto talked about job creation, it is obviously a function of both public and private sector investment. I am not going to use the word frustrating but is it discouraging at one level that you have not been able to walk the talk on this front?
Jobs do not get created outside the economic system. It is only when the economy does well, that jobs are created. So if you invest into the rural areas. jobs get created. If you invest in infrastructure jobs gets created, if you try and boost the economy and boost the MSME sector, jobs gets created. If you try and boost through the Mudra and the other Yojanas activity in the smaller sectors the jobs get created so these are all areas where you are making an effort in order to see that some kind of economic activity boost takes place nad jobs do get created.
I will turn focus to something that a lot of people have voiced after the budget was presented. There are these sweeping powers that have been given to the taxman especially to junior officials and the Economic Survey also talks about a concern about an overreach by the tax authorities. Are you willing to spend some amount of capital there just yet?
Some of the provisions are being completely misunderstood. This overreaction on a provision on informant’s name. Obviously if a court ask for it, it will be disclosed to a court but then disclosing it to authorities other than a court means what your informant’s name gets disclosed. Usually a partner who has fallen out or an accountant who is disgruntled or a family feud, these are the informants normally who give information about tax evasion. Now any appropriate authority would record his satisfaction and say this is the information and therefore a ground for search is there. Our experience has been that these documents used to become public and our sources would completely dry up for want of disclosure. Now just as a journalist does not disclose its source, the searching authority in the Income Tax need not disclose his source unless a court asks for it.
But you feared it could be misused. That is really the concern?
And your stories can also be misused because they may be wrong but that does not mean we must blank the channels out. Now these are all conclusions which are completely impractical. So all that we have done is that this report on which the satisfaction is based, if a court ask for it in a sealed cover, you can give it to the court to see.
FIPB reforms have been largely welcomed. You have done away with FIPB because this was like this one gate where things were being stalled, could we not simplify it further, 26, 49, 74, 100 because now it is going to be at the discretion of nodal ministries who may perhaps not…
Today 90% of FDI is automatic route, there is no nodal ministry. There is no finance ministry. These 10% cases we will now be clarifying the procedure as to how these cases are going to be handled. Now in most of these cases, some clearance used to be required from the nodal ministry and with the finance ministry. Now all that we are doing is by eliminating the FIPB which has outlived its utility, you are jumping one step and just allowing one clearance. Now where it is regulated, then somebody has to look into it. We can trust the appropriate ministries as much as the FIPB could be.
I am tempted to ask you a question on oil behemoth, do we have a broad contour of what this oil behemoth will be or is it just going to be a merger of all these oil entities, how is this going to…
Well I would rather not comment on it. We have indicated an idea for the future and I think it is for the petroleum ministry now to work on that idea. I think which direction it leads is at least clear to me, I am sure it is equally clear to you but beyond that I would not like to clarify.
You spoke about economic offenders and it has been in the public domain and Times Network will take some credit for breaking that story and that was not wrong which is Vijay Mallaya wrote a letter to your predecessor about restructuring of his loans, the Congress Party’s response to this has been that it was routine mark down…
I will tell you, I do not want to go into an individual case, but first of all let us go to the genesis of this NPA problem. It is not the small guys who are defaulting that much and the small defaults we can live with, the farmers defaults also we can live with but bulk of these NPAs are big industries. Money was given essentially around that boom period of the global economy and now those sectors do not seem to be doing so well. We are trying our best to rectify it.
Since 2014, none of these big loans have been given because the banks themselves were feeling stressed in giving these loans. And all that the NPAs have increased is that on the past loans the interest had been increasing and the asset quality review has led to discovery of more loans which were otherwise not being disclosed.
Now is it the officials alone who were responsible or the bank officers alone which were responsible? The letters indicate, whichever cases have come out, there was a little over activism as far as the government is concerned. Now sources tell me that in many cases it was not even North Block which was active in these cases, it was the political limb of the then government in power which was more active, they were active in banking appointments, they were active in helping business houses etc but somewhere professionalism seems to have taken a back seat. Now whether these bank officials were acting on their own, they were acting on indications which were coming from the top, is an issue to be sorted out but I think all that happened does not speak very highly of the level of professionalism which was being maintained.
I simply buy your point about the political limb being active but about the role of the RBI, I mean, should not have the regulator, the RBI have kept a more hawkish eye at least on what was happening with and restructuring, will they shoulder some part of the blame?
I can only tell you when I took over I received recommendations for a large number of chairpersons to be appointed and I wanted to know who had cleared these, what was the process and suddenly I found that nobody including the RBI was willing to take responsibility for those names.
These were those last minute clearances which had been granted during the election period and finally we had to appoint a committee which comprised of two senior secretaries and the RBI governor and who recommended that most of those appointments. This is a telling story on the state of things that was.
But as a regulator the RBI could have been a little more active. I am going to turn focus to what is happening or what happens in the house just two days back. I know humour, sharp width jibe are the part of any vibrant political democracy. But perhaps the raincoat barb that the prime minister made was distasteful, like the Congress Party says took the discourse lower. How would you defend that position?
The Congress Party reaction has been something which lacks maturity. First of all, parliament is not a dry or a dead forum. It is a political forum. In a parliament debate, the rules which apply are very different from what would apply in a convent school debate and therefore the language that you use, the wit, the repatriate, the kind of aggression which is involved is entirely at a differently plank. We are in politics. Now I am not giving the argument that look the way you attack the prime minister over the last 14 years, I am not going into that argument. I can rattle out all the phrases that the Congress Party has used. But at the end of the day, parliament is a forum where you use satire, where you use left handed complements, where you use wit.
If you look at the best illustrations in British Parliament, I think historically those are counted and if some of them were even used in India, I think the Congress Party would be boycotting parliament forever if they got so sanctimonious about it. So they has to reach a certain level of maturity. Let us also remember that there is no pope in parliament. There are no priests in parliament. Everybody there is a politician so you have to be attacked for what you where you have gone wrong. You have to be complemented for where you went the right way and at times there are left handed complements also.
As for why it hurts the Congress Party and I will tell you the reason. Dr Manmohan Singh used a phrase that the demonetisation is organised loot and legalised blunder. Now this comment did not hurt us. It did not hurt us because it did not stick. The whole world knew that for ten year India had a seen a very corrupt government and the present government is perceived to be scam-free. And therefore if you use phrases like loot and blunder particularly when you have been a head of a government which had a bad image on the corruption front, your allegations does not stick. So the allegation was made. It was just a parliamentary debate. We took it in the right spirit. We responded. Now why did this allegation hurt? Why did what prime minister said hurt? It hurts because it was a left handed complement which said that you are a very clean person that even in the mist of all that dirt which is going on in the last ten years, you remained clean. Now that is all it meant. Now how is it so objectionable that you would become so sanctimonious, walk out and then say nobody can be criticised. After all a parliament is not a temple or church. A parliament is a political establishment where there will be debates of this kind.
Do you believe there is a way there that the Prime Minister can perhaps acknowledge it that he did not really mean it like that and move on?
Why should we you have a Congress Party where its two principal leaders say maut ka saudagar, khoon ki dalali. Besides being vulgar vocabulary, you have used phrases of this kind. I thought the Prime Minister was at parliamentary best, he said something in a very nice way about Dr Manmohan Singh being a clean politician and at the same time he give a left-handed compliment about the last government having not been not so clea. What is wrong with saying that?