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In an interview with Lok Sabha TV, Finance Minister Arun Jaitley said the inflation index would determine the nominal growth figure, and it is better to set modest targets and outperform them.
Edited excerpts:
The nominal growth for 2015-16 (FY16) has been projected at 8.6 per cent. For the next year (FY17), the nominal growth projection is 11 per cent. In the current year, revenue growth has been about 17 per cent; for next year, it is projected at 11 per cent. The Budget also shows 10-per cent growth for revenue from service tax, after a 25 per cent rise this year. Are next year’s numbers on the lower side?
I would rather be conservative and improve. The current year (FY16) is an exception.
With oil prices falling to $30-32, I was able to pass on a part of the burden to the consumer, and a part we took on as cess, etc. This, we could spend on infrastructure.
If the growth is about 13 per cent, the rest came by way of additional revenue measures.
Maybe that luxury will not be available in the next year (FY17), as you don’t know how much oil prices would go down.
But, you have to have a fair assessment on that. Therefore, you assume you would collect as much as you did this year, plus a little more.
I think for the next year, one of the reasons why the nominal growth has been of concern is that for 15 months, the wholesale price index (WPI) has been in the negative.
When you average it with the consumer price index (CPI), your nominal growth comes to about 8.6 per cent, though your growth rate is seven or 7.5 per cent.
During the United Progressive Alliance government, it appeared to be 12 to 14 per cent because of the inflation index, which is now very low.
So, it all will depend on the inflation index. We have, therefore, taken a modest 11 per cent growth. If we are able to collect more, of course, we will be able to reach that target very comfortably.
There are two areas of concern: One, the limited-period tax amnesty you have announced, and, the continuation of tax holidays. Do you think you are creating some sort of a moral hazard? Could you have gone a little more on the path of reduction in corporate income tax and phasing out of exemptions?
There are monumental income tax law changes that I have made. First, on the schemes: It’s not a Voluntary Disclosure of Income Scheme, it is not an amnesty.
Inequality arises in an amnesty — you, as an honest tax payer, have paid 30 per cent, 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 per cent.
This is not amnesty as I am ending up paying one-and-a-half times more because of penalties for not having paid tax in time.
This is intended to get some money from outside the system into the system.
In the second scheme, if an appeal is pending in direct taxes, you pay, up to a certain point, the principal, the tax, plus the interest till the date of assessment.
If it is a higher amount, in some cases, there will be 25 per cent penalty. And, you can sort your past tax problems out.
There are similar schemes for customs, excise and service tax. If there is an issue of retrospective tax pending, there will be no interest and 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, besides giving some advantages to small taxpayers, the most important aspect is the move in several cases to presumptive taxation.
Small businesses, traders, shopkeepers, budget for an eight per cent, take the deductions, and pay the tax - and, no books are required.
If you want to pay less then we’ll look at the books. All professionals, and there is a large amount of provisions in all professions, the presumption is 50 per cent 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 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. I will start getting the benefit of exemptions being diluted.
This year, I don’t have the benefit of any exemption being diluted.
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, but you did not meet the target for the current year (FY16). At the end of the year, the figure is Rs 35,000 crore, and there is no strategic sale. You have proposed to raise it to Rs 55,000 crore next year (FY17). The second one is about the consolidation of public sector banks.
As far as disinvestment is concerned, this was a very difficult year. The markets were in a turmoil. The stocks impacted most were oil, metal and commodity.
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.So, I stopped, and we will make about Rs 23,000-24,000 crore this year.
During the previous National Democratic Alliance government (1998-2004), we had total strategic sales of about Rs 26,000 crore in the first one and a half years.
Till now, I have been able to sell assets about Rs 40,000 crore, without any controversy.
Therefore, I am still continuing with it. Last week, we had NTPC sale. Probably, in March, we can look at more areas. We will divest, we also have strategic sales plus asset diversion.
If a public sector unit has several units under it, can you dissect one. Globally, this is called asset recycling.
The company will get more money by selling it to a private player and the money it gets might set up two more plants in some more fruitful areas.
This is asset recycling: 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 close.
About banking consolidation, does it mean winding up banks that are not viable?
No it doesn’t mean that. Only for IDBI have I asked government holding to be brought down below 50 per cent. For the rest, it remains 52 per cent.
The first step is to improve the 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.
For infrastructure projects, I have brought three proposals to settle disputes so that projects don’t remain standstill. One of the measures is legislative.
India still needs public sector banks. But do you need so many of them, and some of them weak? Or you need fewer and stronger banks?
That’s what I spoke of when I talked of consolidation. This consolidation is not an alternative to improving the balance sheets.
In the current year (FY16), transfer to states from central revenues has actually gone down by four per cent compared to what you had projected. What could be reasons when you read this along with the new cess that you have introduced?
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 the one on irrigation, these are items the 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, the 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.
On the subsidies front, international crude oil prices have come down by 70 per cent in the last year (FY16). You have rolled out the 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 (FY17), you are actually projecting a minor increase. What is the mathematics behind it?
On petrol and diesel, the subsidy is off. On 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 fertilizers, and the third is kerosene, which becomes a fuel for the poorer sections of society.
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 for fertilisers.
I don’t want small farmers to suffer when fertiliser costs go up. We still need to subsidise them because the farming sector is distressed.
So it will remain. But can it, by a better transfer model, reach the actual beneficiary and also save some money for the government?
