It's clear a country can't regulate crypto on its own, says Sanjeev Sanyal

'There are a lot of claims about how important the sector is, but nobody really knows. So it's only when we begin to tax it will we get the scale of it', he said

Principal Economic Advisor Sanjeev Sanyal says regulating virtual digital assets will require an international effort and that the true size of the crypto assets market in India will be revealed, now that transactions are being taxed. Sanyal, who drafted the 2021-22 Economic Survey, tells Arup Roychoudhury the Centre is unapologetic about privatisation even though there was no mention of it in the latest Budget speech. Excerpts:

The Survey projects an 8-8.5 per cent real growth rate, and the Budget projects 11.1 per cent nominal growth for FY23. The sense is that your predictions are too optimistic because there will still be some inflationary pressure.

Do remember that these projections are done by the same team. And they are done for different purpose schools. Since we live in an uncertain time, all projections, as you know, are based on certain assumptions — the assumptions are clearly mentioned. And the number that comes up is in fact anything more conservative than that of external observers like the International Monetary Fund. So to say that our numbers are optimistic is kind of awkward, given that we are more conservative than other credible forecasts. Now comes the other number, which is a nominal GDP growth rate forecast. Let me point out that it is not meaningful to divide it into in the way you have done since the basis of that number is different. That number is a nominal benchmark for budgeting purposes. And it is consequently more conservative, because when you are doing a budgeting exercise, and you have a baseline assumption, that baseline assumption is best done as a conservative one. So our real GDP growth rate is more conservative than what others think. And the baseline budget assumption is even more conservative.

What are your inflation assumptions for the coming year?

There are a few things we need to take into account. One is obviously oil prices are a very volatile element. Our own feel is that something between $70 and $75 per barrel is probably likely. Now of course I have no way of predicting about geopolitics in Eastern Europe or East Asia, but reading whatever material is available from the International Energy Association and other agencies, that’s the range.

So that is one source of external inflation. There are other sources. There is the issue of semi-conductor chips, disruption of shipments, and so on. And in all of those cases, our assumption is that those will ease out over the course of the year, even though it will be an issue, particularly in the first half of the year. So that is, we have clearly mentioned, but that is part of our forecast. Domestically, our supply side has mostly been groovy, especially if we open things up.

The government is now taxing virtual digital assets, while the regulations are still awaited. How does it sit with you?

It’s no different from any other sector. If you’re making large capital gains, we felt the need to tax and we clarified the matter that it needs to be taxed at this level. And we also put a transaction tax so that we have information. There’s a lot of claims about how important the sector is, but nobody really knows. So it’s only when we begin to tax it will we get the scale of it.

There has to be regulation, because this current laissez faire approach clearly is not tenable. I do not know what it will be, it could be loose, it could be strong, who knows, but, it is very clear that one country cannot do this. It will have to be done in a more broad-based way. We are in discussion at the highest levels, including the G20 and other places to come up with a concerted effort which most finance ministries and central banks will agree.

Unlike last time, the FM has dropped the word “privatisation” from her latest Budget speech. There was no mention of the banks and insurance company that were planned to be privatised. Many other plans are still pending.

We are unapologetic about the use of the word “privatisation”. I don’t think we have any problem with it. We have also demonstrated what we can clearly do. Air India has a clear demonstration more will be done. The key thing to remember there are processes that require to be done. And we will do it step by step.

The criticism is that this is not a Budget for the middle class, for salaried taxpayers.

I think there is a misunderstanding of what you mean by a middle class Budget. After all, if you invest heavily in infrastructure, it immediately creates jobs. Many of those jobs go to the middle class. One of the reasons we are doing it in this particular way, because there’s more than adequate evidence that infrastructure spend directly leads to multipliers, which are much stronger than is the case with any other kind of spending. Given the circumstances, if you have limited resources, the sensible thing to do is to put it into this area.

So if there is space going ahead, the government will go for tax cuts?

Yes of course. I am always in favour of simpler, lower taxes. And many other members of the government share a similar view. But there is a time to do it. At this juncture, our emphasis has got to be on getting the economy going that requires the government to spend and clearly we are willing to do it.