Govt unlikely to meet disinvestment target: Finance Secretary TV Somanathan

'I don't expect a huge uptick in inflation. I think it will remain within the 4 to 5 per cent band', said Somanathan

The Budget is being made in the context of an economy that is rapidly recovering from the effects of the pandemic to one which could now be back to pre-Covid levels, Finance Secretary T V Somanathan told Shrimi Choudhary in an exclusive interaction. Somanathan spoke about the implications of the Cairn settlement, disinvestment target, LIC IPO, fertiliser subsidy and more. Edited excerpts:   

What’s going to be the theme of the upcoming Union Budget?

I can't talk about the theme as it has to be picked by the government as a whole not by the finance secretary. I can tell you that the Budget is being made in the context of an economy that is rapidly recovering from the effects of the pandemic, at least as of today, to an economy which is seeing a potential rate of growth, which could now be back to pre-Covid levels. I think our rate of economic growth next year could approach that of 2018-19 and earlier years. So it's a year when a number of things are probably going to be better. But there are uncertainties, nobody knows whether Covid has actually gone or not. There are a lot of international issues like the possibility of a tapering by the Federal Reserve which is one of the things that could affect us over the coming 12 months. It will have an impact on our monetary policy, exchange rate and many more things. On one hand, we have some very positive signs of domestic activity: vaccination coverage increasing, threat of a big third wave receding, but there are external factors that could pose difficulties. Another thing that you can see is that a lot of commodity prices are very high. It's not just oil, it's also inputs for fertiliser. Some of these can offset each other-- if there is a taper it will probably push commodity prices down. So, these are factors that one has to keep in mind when framing the Budget.

Since fertiliser prices are a worrying factor, what measures is the government taking?

There's a huge rise in the prices of fertiliser, which affects the fertiliser subsidy very substantially. We will be making substantially higher provisions this year in the revised estimates. Just for fertiliser subsidy extra allocation may be Rs 40,000 crore, which is 0.2 per cent of GDP. Measures to increase supply will be decided by the fertiliser ministry but we have agreed to make provisions for the extra fertiliser subsidy that is needed.  

Do you have room for this additional provision? 

There has been a good increase in revenues. Several items of expenditure are also up. And some non-tax revenues are likely to be down, particularly disinvestment. Disinvestment is unlikely to reach the Rs 1.75-trillion Budget target as Covid derailed the plan in the first two quarters. We have enhanced revenues, but also have enhanced expenditures. Apart from fertiliser, we are clearing export incentive dues of about Rs 56,000 crore, besides the big increase in food subsidy. So in that overall equation, all that I can say is I don't think the fiscal deficit will be very different from what we have anticipated in the Budget. So I think there'll be offsetting changes in revenue and expenditure.

So, the government may not meet the disinvestment target of Rs 1.75 trillion this fiscal. Is that right?

I think it's unlikely to be achieved, mainly because we lost two quarters to Covid.

Will the ministry consider fiscal consolidation or rather opt for measures to boost economic growth in the Budget?

We will have to keep fiscal prudence in mind and anything else that we do will also have to be balanced with that. So it cannot be one at the expense of another. So it cannot be growth alone.  Yes, there’s need for the Budget to stimulate and support growth. But we would also need to make sure that fiscal prudence is maintained. That balance is what we will have to strike between growth and prudence. You would have seen that recently, a lot of commentary has shown that huge stimuli by emerging economies have not necessarily led to good growth outcomes and the conservative spenders have done better than the extreme spenders.

When can we expect the LIC IPO to hit the market?  

The sale of equity in LIC is quite likely to happen this financial year. It has a tight timeline but I'm cautiously optimistic. 

Cairn has said it has entered into undertakings with India to settle its dispute. What about others like Vodafone?

This is a landmark in terms of giving certainty to investors. The government has shown its intention that it is not only withdrawing retrospective taxation but also reaching a solution that is acceptable to the parties. It indicates that we are on the path to a solution and it's not a theoretical construct that was just brought up by us. It is something that can help close the transaction. My impression is that it will settle almost all the disputes. I expect them all to be settled.

Although CPI Inflation has been down to just 4.3 per cent in September, there has been a spurt in the prices of tomatoes, onions, and some other vegetables. Do you expect inflation to show a surge now?

I don't expect a huge uptick in inflation. I think it will remain within the 4 to 5 per cent band. I'm not seeing any significant degree because some of the things that you're referring to are purely seasonal. I'm fairly optimistic on food prices because I think we have good harvests. And I think onion prices will abate shortly. The problem that I see is commodity prices. Those are not seasonal, especially imported commodities. That is a structural factor. Yes, if there is no taper and if commodity prices remain high, we may see some threats to inflation. But I also don't think oil is going to go much higher than it is now. It may not fall but it may remain at around $85 a barrel. Remember, inflation is a very dynamic concept. If there's any external disruption, it may further raise commodity prices.

What does Air India sale mean to government?

Air India sale is a landmark in India's economic policies for two reasons. One, it is an indicator of a big policy shift. It coincides with the formal statement that the government's public sector policy is now different. 

Air India was one of the most difficult organisations to privatise. If we were to start privatisation with an easy one, you would not start with Air India because Air India has labour issues, borrowing issues. It has complicated lease arrangements, it had leases, which were guaranteed by the government, it had borrowings that were not guaranteed, it was also losing cash, it needed continuous cash infusion from the government.

It had certain assets, which are good, and then it had some liabilities. Now, assuming that it gets done. It has built capacity, particularly in the Ministry of Finance, in handling the intricacies and difficulties that come with a complex privatization, which don't come with a simple partial disinvestment, when I'm selling 10% of some undertaking, you don't necessarily undergo all these issues.

So I think this will help us to handle future transactions. And I doubt that there could be any privatisation transaction more complex than Air India. This is the most difficult one that we could have chosen. And it took a lot of effort on the part of the finance ministry officers at all levels, official and political level. It required considerable devotion of time, energy effort, and a lot of open minded ability to react and correct and change.