No room to delay GST beyond September 15: Arun Jaitley
In an exclusive interview with ET Now’s Supriya Shrinate, Finance Minister Arun Jaitley says intends to make an effort to take the legislations into parliament in the second part of the budget session.
Edited excerpts:
Almost 10 days after the Budget, it looks like the budget has been well received. Everybody has called it balanced and prudent barring the opposition.. Most stakeholders whether it is markets or corporate India have voted in favour of the budget. They believe it was a balanced exercise. But one stakeholder, the RBI, seems to have turned very hawkish. Are you perplexed? Is this discouraging?
Normally I do not comment on the RBI’s decisions. They are a professional institution with a lot of institutional experience and we move on the assumption that they are best suited to take these decisions. And now we must bear in mind that this is a decision of the monetary policy committee and therefore they weighed all circumstances. Now two policies ago, they reduced the rates. Thereafter, immediately after the demonetisation exercise was over in January, the banks had taken some initiatives and that movement is on. Now RBI has followed a cautious approach but that is their prerogative. I think let us wait. This is not the last policy on the matter and it is an evolving situation.
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You are perhaps being the gracious finance minister and not essentially saying that you are walking the talk on growth alone but I am going to point out what the markets have spent a little bit of time over which is, it is alright, they did not have to cut rates because the banks are doing their bit and lending rates have come down. But the change in stance has taken a lot of people by surprise. From being accommodative to being neutral essentially means that they are giving themselves elbow room to both reduce and hike rates if need be and I am presuming that is not the validation that you were looking for. They are saying fiscal prudence was very good but still they have not seemed to endorse it.
I can have my own assessment of the situation, particularly in view of the fact that not only is inflation within the range, it is within the 4% range. We have the flexibility from 2% to 6% but this one is at the moment a little below 4%. But then we must leave it to the RBI’s judgement. They know how to move the best and in case the situation evolves and changes, the RBI will certainly be moving along with times. There have been instance in the past where I would have said that my own assessment could have been different but then we do not express that ever because we leave it to the RBI’s wisdom.
The reason why I asked that question, it is no longer just one man’s discretion. This is the monetary policy committee (MPC) and the whole idea of appointing the committee which you eventually did was to have vibrancy of views and to have people who would bat for growth as well. While fiscal policy seems to be batting for growth, monetary policy seems to be very hawkish.
There is no reason for us to assume that the six members would not have discussed all these aspects. I am quite certain that within the committee meeting they would have discussed all these aspects and when they come out with a particular decision, that was the collective wisdom. It is not necessary for people to even annex contrarian views. They take a broad consensus. I really do not know how they have voted because those proceedings are still not out but I am quite certain that when six people with a certain amount of both academic and experience credentials meet, they would have taken in all the relevant considerations in mind.
Demonetisation paved the way for the banks to cut lending rates and we saw substantial cut of 90 bps, almost a percentage point cut there but many people believe that as remonetisation happens and MCLR goes up. banks may perhaps be forced to push rates upwards. Is that a concern you share?
I would personally always like the rates to moderate because once the rates moderate themselves they help us in grow, they helps us in increasing the amount of credit, increasing the amount of lending, making it more audible. I would personally prefer to see that but then the RBI has the onerous responsibility of balancing it with inflation and their own concerns. I am sure they have done a balancing act keeping in view what has happened over the last four months. So, let us wait and see how RBI proceeds in the months to come.
Unlike the former Finance Minister and your predecessor you do not believe the RBI is not believing in your budget and which is why they have taken this call?
I believe in communicating with the RBI and I will have my own style of dealing with the RBI.
Fair point indeed, but one last question before I move on to the budget per se. It has been 41 days since the whole demonetisation drive ended. It is a little perplexing that we do not have a final figure from the RBI just yet. Are you as disturbed about not having a final figure?
Not in the least.
Why not?
The RBI’s final figure cannot be an approximation. The RBI has a huge amount of currencies of high denominational notes from all over the country which has come in. This is lakhs and lakhs of crores of rupees. Now unlike a broad assessment that they would give earlier, that in the current chest so much money has come in today, now they through machines count every note, take out a possible suspicious note or a fake note out and then put of the residual currency give the balance of how much really has come in. It is a huge exercise, it is not an exercise which can be over either in weeks or in a month or so.
It is an exercise which will take a reasonable amount of time, the RBI can give you at some stage an approximate figure but that would lead to a speculation. So, let us leave it to the RBI. Once that final tally is complete, only then they would give it to us.
Going back to GDP numbers and what you have projected, a lot of your budget mathematics this time around is based on the economic survey numbers which is not statistical data because there was not statistical data that was available. In that sense, did you find it tough to prepare this year’s budget given domestic factors like demonetisation?
I do think so. First of all, let me tell you on the GDP, demonetisation of this kind and a consequent remonetisation really has no fixed model, there is no rule book, there is no past experience and therefore there is a lot of assessments which economists have been making and various professional institutions have been making.
Secondly, there is a lot of counting that remains outside the GDP, particularly of the informal economy.
Thirdly, a lot of integration of the informal with the formal economy is taking place and therefore when you look at the formal sectors of the economy, you will find the figures completely different. Why should the airline traffic have increased in November and December? How has the sowing increased? How has the four-wheel sales increased? Then coming from the informal sector where the spending takes place, the two-wheelers sales have gone down. So you can see that particular difference.
Therefore if the World Bank, the IMF, the CSO, the chief economic advisor have all given their assessments, I broadly take the tenor of all these assessments that in the short run, you will have a squeeze and its impact but in the medium and the long term, the size of the formal economy will increase, the revenues will increase and the GDP officially will increase and that is a gamble. This is a factor which we factored in when we took this particular decision.
Now on preparing this year’s budget, I do not think this was as complex an exercise as has been made out to be. First of all, our revenue figures are intake, last two years we have grown by 17%, this year we factored it at 12%. This 12% does not take into account the revenue growth either what may come as additional dividend or the possible impact of demonetisation on tax collections which after a first few months could be significantly larger.
There is a second variable also which is once in the middle of the year the GST gets implemented, after the initial hiccups, the GST itself could lead to larger collections. Now both these factors we have not really taken the full impact of them.
You have been more conservative than...
Now what are the areas we had to spend on? We had to spend on rural areas and agriculture, we had to increase the amount of social sector spending, we had to increase the quantum of spending on infrastructure. The infrastructure spending is Rs 396000 crore. in the coming year. This is used to be the entire planned expenditure which the UPA used to undertake in a year.
And doing away with that discrimination has given you the flexibility?
And it gives us that flexibility. And then you decide the fiscal policy, the taxation policy accordingly which are the areas into which you can make the-- I did not tinker with indirect taxes for the simple reason that after the first three months, in any case of the GST is to be implemented then there is no point increasing the indirect taxes for a period of only three months.
You have got a big thumbs up as far as doing a balanced budget is concerned and it will be frustrating for people to question the hygiene of your numbers. I am going to leave it at that but turning focus on spending, I buy your point that your intention is to spend more but data seems to suggest otherwise and just to quote Mr Chidambaram in parliament yesterday. As a percentage of GDP, spending is being contracted, that is the allegation that is coming in from the Congress Party. They believed it was 13.6%; in budgeted estimates for fiscal year 2017.
You have to relate it to the quantum of money which is available. If I spend beyond my means, than I land up at the UPA rate of fiscal deficit of 6.5% and I would not want to do that. So I had to maintain a certain amount of fiscal discipline consistently inheriting a bad quality figure of 4.6% of fiscal deficit just two-and-a-half years ago. We have gradually brought it down to 3.2%. We intent to move down further. At the same time, within the volume of taxes available, quantum wise, numerically it has to increase and thirdly, on spending, my track record is significantly different from what has happened in the past.
In the past, there was a huge difference between budget estimates and the revised estimates. Yesterday I cited figures to say that over Rs 1 lakh crore used to be slashed in the development expenditure each year to meet the fiscal targets. On the contrary, in the last two years my revised estimates are much more than my budget estimates and therefore I would rather be conservative and then err on the right side by spending more rather than just cutting and slashing expenditure at the end of the year.
As somebody who likes to be conservative, was it a frustrating exercise to go to 3.2%? Would not you rather have had stuck to 3% because it can be read as a sign of weakness?
One has to do a proper balancing act. Fiscal consolidation is necessary. You do not have to leave the next generation in such heavy debt because you want to spend a lot more today. The absence of fiscal consolidation and fiscal discipline sends a very negative signal into the market and if central government does not maintain that fiscal discipline, the states in any case are saying allow me to reach the RBM target and then there would be no end to it. Therefore you had to continue the downward movements. The markets were willing to overlook the difference between 3 and 3.2. In fact, in the year…
In You have outdone the market. They were expecting 3.4%, you have just done 3.2%.
In the year of possible GST and in the year immediately after demonetisation, when the world has slowed down and the need to spend is there, I think the target of reducing 0.5 in one year and then maintaining a pause at 3% was a little extraordinary and therefore instead of maintaining coming down from 3.5% to 3% we chose a more safer course, 3.5 to 3.2 and finally to 3%.
You have almost walk the talk as far as divestment is concerned. I think it is two days back you have sold about 2% stake in ITC which was held by a SUUTI. Will we see more stake sale that your hold in company via SUUTI?
You would for the reason. I always said that disinvestment is the art of the possible. You go in for strategic sales. You go in for asset sale. You go for buyback. You go in for selling a small percentage of shares into the market and you do it without stepping on too many toes.
What I learnt from the experience of the first NDA government was that in a period of five years at that government we disinvested about Rs 28,000 crore. Everyday there was some controversy relating to disinvestment. At the end of the day when 2004 election were held, there is a sizable vote amongst the working class that we lost which will be made too much noise of. Today we are quietly doing it without any controversy, without any confrontationist policies.
For example, this current year, in one single year I would have divested worth Rs 45,000 crore. We are almost close to Rs 40,000 crore at the moment. Next year, I have a more ambitious target and it is achievable for the reason that last year we took a decision to list the GIC companies five of them. Now under the SEBI listing guidelines, the government holding has now to come down from 100% to 74%. I already have an agenda where there are companies with very high valuation and this year I have said a lot of other PSUs including the railway PSUs are going to be listed. If IRTC, etc, is the most visited site in India, if it gets listed and its market valuations are taken, sky is the limit as far as that company is concerned.
Why should you not tap revenues that are readily available but is there so much appetite for government paper that could hit markets next fiscal?
The appetite of the market also has to be seen and our experience has been in all the divestments we have done so far that both domestic institutions, FIIs as also small investors have shown a lot of interest because a lot of these are very valuable shares.
CPSC is one of those things but the 2% stake sale in ITC for instance. There are two questions I want to ask you. One, LIC ended up picking it up. Would you want that trend to change and why should LIC come to the rescue all the time and the second thing is why keep your sacral SUTTI at all? Will we see the government divest SUTTI completely?
Well I am not going to make any comments on that because this influences the markets. As I said, it is an art of the possible and at this stage keeping these 2% shares, divesting it and at some subsequent stage, the LIC also takes commercial decisions with regard to how much to retain and when to retain and when to divest. That is a methodology of by which governments have acted in the past also.
Indeed you have brought in a lot of relief as far as corporate tax for the small and medium companies are concerned. It is the big business that is wondering when will you walk the talk that you promise in reducing is that on the table because you have got two years into the stint?
I have said that this will be coupled with the exemptions going out now let me make it very clear at the moment the exemptions have not gone out because I do not intend to lift the exemptions ahead of time. Today as far as the large companies are concerned, the average tax that they are paying is already around 25%.
Even at 22% or something.
They are not paying 30% and as far as the smaller 96% companies are concerned the MSME plus as I call it the average tax they are playing is 30%. So those paying 30% would be entitled to this relief and not those already paying 25%.
So is it fair to presume that for big business it is off the table till exemptions?
That is why the original decision was taken. I had never announced an absolute decision to be always linked to exemptions.
You have also made changes as far as the long-term capital gains tax on immovable assets are concerned. There is some parity between unlisted shares, immovable assets contrary to expectations in the market. You did not tinker with long term capital gains for listed shares. Is it imminent in the next budget?
Well I would not comment on that.
Or do you believe you did not want to rattle markets too much?
Well I would not comment on that because this can lead to any speculations.
I want to go back to a point that you made which is you did not want to tinker with indirect taxes because they will be GST may be three months or four months or five months down the line. In hindsight, do you believe because this budget also had to boost demand, you could have perhaps reduce indirect taxes in the interim before the GST happens?
For a period of three months, the impact would be insignificant and there was no point taking those insignificant demands. I therefore followed the alternative route of putting more money in the hands of some of the tax payers the MSME, the small tax payers etc. not only the small tax payers. You see if you historically see all the budgets in the last 70 years, the ext day’s headline used to be what will cost more. Now here I have not increased the burden on anyone.
You took away a big share of our TV screens.
Well I have not increased the tax on anyone and effectively almost every segment in the income tax bracket individual pays a little less. The smaller ones I have reduced it by half, those in the 20% and 30% bracket get a 12500 relief each and 12500 relief is an important relief.
When do you honestly see the GST kick in I know you have made significant progress?
We have made significant progress, we are meeting again on the 18th and thereafter we will have to have series of meetings. I intent to make an effort to take the legislations into parliament in the second part of the budget sessions and if we are able to do that the GST Council’s decision is the 1st of July and in any case you see the only debate therefore convey between 1st of July or 15th of September there is no room beyond that for the GST to be delayed.
