Subhash Chandra Garg took over as economic affairs secretary in the finance ministry in July last year after serving as executive director for Bangladesh, Bhutan, India and Sri Lanka with the World Bank Group for two-and-a-half years. In an interview, the 1983 batch Indian Administrative Service officer spoke about the government’s revised fiscal consolidation plan and the credibility of its fiscal numbers. Edited excerpts:
The government has slipped in its fiscal deficit target of 3.2% of GDP for 2017-18. When did you realize that you may have to revise the target?
We have been communicating practically from September when we announced our borrowing programme and said we are doing the number crunching. Then in December we had a special revised borrowing programme. When we announced the additional borrowing programme, it was clear there is some stress on the fiscal side. My impression is that the market knew about it.
Some analysts consider the revised fiscal deficit of 3.5% of GDP for 2017-18 a little above expectations.
I don’t know why. India has not seen fiscal deficit of 3.5% in the last 12 years. So it is an unprecedented achievement at a time when we have undertaken a number of reforms and there is stress in the banking sector.
Since the finance ministry has accepted most of the recommendations of the N.K. Singh panel on fiscal discipline, why didn’t you invoke the provision of fiscal slippage up to 50 basis points permitted by the committee while implementing far-reaching structural reforms such as the goods and services tax?
The N.K. Singh committee recommendations can be operationalized only when the recommendations are part of law. Accepting the report does not allow us to use it. But the facts remain the same even if it were not there.
Will you be able to use it after amending the FRBM (Fiscal Responsibility and Budget Management) Act?
I hope no such contingency arises. Why should we have to use it?
The bond market has reacted very sharply to the increase in the government’s borrowing programme.
Bond market went up slightly yesterday, it is down today. I think they were absorbing the finance bill’s provisions. I think the market will believe that the government’s fiscal consolidation plan is very good and solid.
Does the rising yield worry you as it will increase the cost of borrowing for the government?
Yields have been rising since July 2017. Of course, any increase in borrowing cost makes a difference to us in fiscal management. But the market prices bonds depending on the supply and demand. If the demand for the government paper goes down, they demand more yield. So we will pay what the market demands.
Many analysts feel that your fiscal deficit target of 3.3% of GDP for next fiscal year is low because you have ambitious plans to hike minimum support prices (MSPs) on agricultural items and implement the mega health insurance plan.
The fiscal deficit target of 3.3% of GDP is quite realistic. Only for these two additional liabilities funds have not been provided. They might have certain implications but we can’t work out the exact details. Both the MSP hike and the new health scheme may have an impact of Rs10,000-15,000 crore next fiscal. This we can provide for.
Will a larger part of it be for the health insurance scheme or MSP hike?
Let’s see. These details hardly matter, what matters is the total fiscal impact.
By how much does the government need to reduce the debt-to-GDP ratio next year?
That path will have to be laid down. We are at about 47% of debt-to-GDP ratio and we need to reduce it to 40% over a period of time. It has a number of other parameters. How much growth you have, how much inflation you have, how much of deficit you are able to run down, how much other liabilities you take on, those are also counted. There are many things but the government’s intention is to bring it down to 40% by 2024-25.
Will you also target a combined (centre plus states) debt-to-GDP ratio of 60% that the N.K. Singh committee recommended?
No. A combined debt-to-GDP ratio is not the responsibility of the central government alone. That was more in the sense that you work together. That is not a statutory obligation.
But the fiscal council that the committee recommended has not been accepted?
Yes. That has not been accepted.
The budget has used the estimate by the Economic Survey of a nominal GDP of 10.5% for 2017-18 rather than the Central Statistics Office (CSO) estimate of 9.5%. Why is that?
It’s very simple. We expect it to be the outcome rather than the CSO’s estimate. CSO’s estimate is based on data for six to eight months, a lower inflation number and a lower fiscal deficit.
But does that not undermine the credibility of CSO?
You have to be realistic about what you use. CSO is also to some extent a prisoner of the methodology.
But do you have privileged access to the third quarter (October-December) data which will be made public later this month? livemint