In a post-Budget interaction with the media, Finance Minister Nirmala Sitharaman said huge spending on infrastructure and health care was a key feature of the post-Covid Budget. She also said increased spending and high market borrowings led to a significant widening of the fiscal deficit. Edited excerpts:
On govt accounts
We have made the government accounts more transparent and nothing is being pushed under the carpet. The government's fiscal deficit has been stated upfront. We increased our spending, and borrowing was raised, leading to an increase in the fiscal deficit from 3.5 per cent to 9.5 per cent of gross domestic product (GDP). So we have spent, we have spent, and we have spent. Otherwise, the fiscal deficit wouldn’t have reached this number. We have shared a clear glide path to bring the fiscal deficit down.
Important features of Budget
The government’s decision to increase spending on infrastructure such as roads and highways, and attending the needs of the healthcare sector are two important features of the post-Covid Budget. The government will prioritise infrastructure to lift demand, besides building capacities for better healthcare management in the light of the Covid-19 pandemic.
Agri infra and development cess
The government has brought an agriculture infrastructure and development cess on a number of items, but consumers will not end up paying more than what they are paying today. A restructuring has been done. For instance, the basic customs duty, where it was 12 per cent, we have reduced it to 7 per cent and added possibly 3 per cent on the infrastructure development cess. At the end of the day, the consumer is paying the same amount or less. The cess has been introduced because we wanted to be sure that in order to improve agricultural infrastructure, we have a dedicated amount coming from the Budget rather than that going into the consolidated fund.
Financial sector reforms
Divestments will continue, and LIC will see its IPO. The insurance sector will see more opening up for foreign investors.
One major cry of all banks has been NPAs (non-performing assets) for which we have been repeatedly giving capital infusion. In order that the bank books are cleared and cleaned up, we will come up with a formulation through which NPAs will be culled out of the banks’ books. It will go into a holding company-like structure, which will do the cleaning up of assets and attract ARCs (asset reconstruction companies) to bid for those assets.
Development finance institution
For funding the infrastructure requirements, a development finance institution is being set up with a capital of Rs 20,000 crore, which will eventually be used to raise Rs 5 trillion in the next 3-5 years. Once the law is passed, we will have an opportunity for the private sector also to set up its own development finance institution. So, in future, there will be a DFI partly funded by the government which will also raise capital from the market and compete with the private sector.
Provident fund contribution
Up to Rs 2.5 lakh, the contribution will be tax exempt which gets 8 per cent annual interest. Anyone who earns less than Rs 2 lakh a month will contribute 12 per cent without a hitch. It will only impact big-ticket money, which comes into it because of tax benefit and assured return.
We have found huge amount being contributed, some to the extent of Rs 1 crore a month. So in this case, giving tax concession and 8 per cent return is not comparable with an employee with Rs 2 lakh a month salary.