Is your estimate of containing the government's fiscal deficit at 4.8 per cent of gross domestic product (GDP) realistic?
There is no exaggeration. Next year, there would be a correction of 0.4 percentage points in the fiscal deficit. In the earlier FRBM (Fiscal Responsibility and Budget Management) application, the correction per year was higher. You can say there was buoyancy in tax collections. However, the type of expenditure control we have today wasn't there. In terms of tax revenue growth, this year, we are achieving 17.4 per cent. Next year, with 6.1-6.7 per cent economic growth, we will get 18 per cent. You also have additional revenue measures. It comes to 19 per cent. The issue is whether we can unlock the animal spirits of productive sectors like manufacturing and construction to get the economy moving. If these fall into place, I think achieving 4.8 per cent fiscal deficit would not be difficult. In fact, the projections are conservative and cautious.
The industry reaction is the projections for disinvestment and spectrum proceeds are too ambitious.
This year, higher spectrum proceeds were expected. But this didn't fully fructify. Now, the question is can these be successfully completed? I don't think at the moment, there is any doubt disinvestment wouldn't happen. As time evolves, one would have to see.
You are assuming the best-case scenario. Things can go wrong, and these might disturb the math.
The finance minister has kept some money aside for contingencies. He has provisioned.
Rating agencies Standard and Poor's and Fitch have said the Budget would not change their assessment of India.
One would have to wait and see. We have to address the fiscal and current account deficits. Automatically, that would have an impact on ratings. Further, investment isn't based on ratings alone. It depends on many other factors.
The finance minister has said if required, the ministry could provide more for the Food Subsidy Bill. Wouldn't that widen the fiscal deficit?
Food is not a luxury in this context. It is not basmati rice that would be provided. Even if you give Rs 2,000 tax credit, the credit would still be for the Rs 5-lakh income bracket. Food security is for the more vulnerable---to whom the benefits should trickle down. In this kind of a year, it is difficult to say we will not provide more for food security, even if it is needed. That is why you cannot keep on giving other kind of subsidies. You have to target good subsidies and take out as many bad subsidies as possible.
Now that the fiscal deficit has been contained, how soon should RBI react, in terms of a cut in the repo rate?
I will only say RBI has more space now.
The finance minister has given an outline of the Goods and Services Tax (GST). But there are some differences between the empowered committee of state finance ministers and the Centre over the phased roll-out of the GST.
If you look at Canada, some states are in the GST ambit; some are out of it. Some states have central GST, while some states have central and provincial GST. So, phased a roll-out is not unknown. But yes, in India, it would be a little more difficult for industry and dealers, compared to a GST structure in which every state takes part. In some states, they would get credit for the service part of SGST (state GST); for others, they would not, as services would continue to stay out of VAT (value-added tax) in the non-SGST states. Thus, it would be a bit difficult, but not impossible, to work out. Industry would have to keep its accounts for inter-state movement for SGST states and VAT states. For the Centre, it doesn't matter, as everywhere, CGST (central GST) would apply.
How different would the revised DTC be compared to the earlier version of the Bill?
Parliament's standing committee on finance has given its clause-by-clause comments on the Bill. Now, the FM is going through those. We are working with him on those comments.
Would the basic policy - less exemptions and moderate tax rates - be retained?
During the Budget-making exercise, did the finance ministry think of raising excise duty and service tax by two percentage points to 14 per cent each?
The finance minister didn't consider that. We are giving incentives to the industry to revive. Excise is collected on manufacturing. Therefore, it would be quite inconsistent to raise excise rates. Similarly, on service tax, 700,000 of the 1.7 million assesses are paying. If you increase service tax while asking existing assesses to come forward under the Voluntary Compliance Encouragement Scheme (through which they can pay tax for the last five years without interest or penalty), it would be very inconsistent to raise the tax on those who have been paying it.
What kind of reforms can one expect in the next one year, given the fiscal constraints and elections in 2014?
Did you see anything that was very election-oriented in this Budget? Some measures have been taken to address the fiscal drag. For higher taxable-income groups, if you look at the same income levels internationally, our marginal rates are among the lowest, other than Singapore. If you go by purchasing power parity, what high-income groups in developed countries can buy with the same money is less than what we can. So, our ability to pay from the same income is higher. Yet, we actually have lower tax rates for such high-income groups. And, we have only partially corrected for their tax contributions through a temporary surcharge. Remember, the surcharge is only for a year.
In the case of this financial year’s revenue deficit, there is too wide a slippage — 3.4 per cent of GDP in the Budget estimate and 3.9 per cent in the revised estimate. This means there's pressure from sources that do not generate capital assets. Why does the government allow such a huge slippage?
Revenue deficit is, in a sense, external to fiscal control. Interest has to be paid. However, our debt-GDP ratio has declined. The interest burden would, therefore, be contained. But we get huge bulges due to Pay Commission revisions. Then the system wobbles.
The government is trying to control subsidies, election year or not. They are correcting the oil pricing policy. The petroleum minister has asked the finance minister to set up a committee for price adjustments. Within the revenue deficit, there are attempts to address other components as well.
The Budget pegged oil subsidies at Rs 65,000 crore for 2013-14, against about Rs 97,000 crore in the revised estimate for 2012-13. The Economic Survey outlined global crude prices as one of the major risks India faces. Are the projected oil subsidies realistic?
The committee would look at how prices have to be adjusted. The formula has to be figured out. But adjustments have to take place. When you have subsidies of this kind, you subsidise one group. But think of the others who aren't heavy users of oil on a daily basis, especially low-income groups. You are not giving these subsidies to them. Therefore, these have to be passed on through market prices so that people can decide whether they would pay the prevalent market prices or not. In other countries, oil prices rise and fall on a daily basis.
This interview was corrected for service tax assesses numbers. The error is regretted.