BackStimulus would have led to higher fiscal deficit, says Ashok Lavasa
Instead of increasing the fiscal deficit, we have tried to prioritize our expenditure and allocate it to those schemes where we feel good scope for implementation, says Ashok Lavasa
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As the senior-most bureaucrat in the finance ministry, expenditure secretary Ashok Lavasa is also designated as the finance secretary and oversaw the presentation of the budget, his first in the finance ministry, post demonetisation. In an interview, Lavasa talks about way ahead for subsidy reforms, feasibility of a Universal Basic Income, counters criticism that budget has not done enough to boost growth and downplays impact of demonetisation. Edited excerpts:
Subsidy reforms has been a focus area for this government. So, what is the next big frontier for subsidy reforms?
When you look at subsidies, there are three major subsidies that the government has been giving. On the kerosene subsidy front, there has been a reduction in total outgo. On the fertilizer subsidy, in terms of finances, we are where we were. In terms of food subsidies, there is an increase. And all the three has to be seen differently. The food subsidy allocation has gone up because there is a greater coverage under the national food security act. On the fertilizer subsidy front, even though the cropped area has gone up, the consumption of urea has not gone up, the fertilizer bill has not increased.
On urea, there are some important aspects that have to be kept in mind. One of them is, the entire manner of providing subsidy has to be looked at so that the delivery of subsidies could be made more efficient. Some of the urea manufacturing plants that have been taking subsidies, how can an improvement be brought about in their costing and production processes.
On fertilizer, there is a pilot project that has been launched on transferring this benefit through DBT mechanism. There are number of fertilizer depots that exist in this country. There is an effort by the department to get PoS machines installed in the fertilizer depots so that there can be proper verification of the beneficiaries and have these PoS (point of sale) machines linked to Aadhaar. It is in the process of being launched. It’s like in the PDS shops where 1.75 lakh of them have PoS machines. The rest of them are also being included. Same is in the case with fertilizer depots.
In the case of kerosene, Aadhaar-enabled verification has shown very good results. That is what has helped many states in weeding out ineligible consumers. Haryana has announced nine districts kerosene-free in November 2016. The state government has declared that by end of this financial year, they will declare the entire state as kerosene-free. Chandigarh has become kerosene-free. In this regard, the scheme that the government of India announced of giving incentives to states where allocation of kerosene quota is going down, that has also helped and some states have come forward such as Telangana, Haryana, Karnataka to claim that financial support from the government. Overall, the direction in which we are moving is reducing the allocation of kerosene to the states. There is also a small increase in kerosene every year. So, from the environment point of view and the budget point of view, we are moving in the right direction. The pilots on both kerosene and fertilizer are going on. The impact will be verified.
Like kerosene, is direct benefit transfer (DBT) the model to be followed in food subsidies also?
We have to weigh the advantages of DBT. Because ultimately, DBT has to ensure that the commodity also reaches the beneficiary. So, it is not only the transfer of subsidy, it is also the availability of the commodity. So, we have to weigh both of these while going forward in this direction. There is no point making an efficient delivery of the subsidy without ensuring that the commodity reaches the people. In some places, infrastructure may be more sound, in some other places it may not be as sound. So, the government has to keep both aspects in mind. Strengthen the infrastructure also and make the delivery mechanism more efficient.
So does that mean unlike other subsidies, for food subsidy, there cannot be a one-size-fits-all model that can be followed?
I don’t think we should press the point that there should be a uniform model for the whole country. It can be different depending on the circumstances.
The Economic Survey this time has spoken about Universal Basic Income (UBI). But what groundwork needs to be done before even we think of implementing it?
In a sense, the UBI is also linked to what we are discussing. The purpose of UBI is also efficient delivery of resources. UBI says let’s not get involved in delivering anything at all except transfer that money to the intended beneficiary. This is an idea with a good objective. We need to deliberate and discuss all its dimensions and see what does it mean. So, in this discussion, all the people who provide the resources for this financial support, they will have to be taken into account. Some subsidies, for example electricity subsidy, are given by the states in which the government of India does not contribute at all. So, whether the intention is all of that is to be subsumed, whether you do away with everything and bring in UBI or whether UBI becomes an additionality, these things have to be deliberated at length. And then (one has to) see how you can make a scheme. For an idea to be converted into a scheme, you have to consider all these aspects.
Apart from food, fertilizer and kerosene, the central government also provides some sort of support through subsidized health and education facilities. So will that also be phased out if UBI is introduced?
We have to deliberate on all these things. Because many subsidies that are provided by the government which are in the nature of a support to the poor people, can you monetize them and look at a money transfer or government’s responsibility of providing those services will continue—all these different angles need to be looked at.
So what is the next step on UBI? Will you now consult the state governments?
I think first we have to internally deliberate this (in the central government).
The other angle is when you refer to Universal Basic Income, it appears as if it is universal in character and there is no filter. The introduction of a filter, what should that filter be, who should verify that filter—these are all questions which have to be addressed.
On the budget, some critics point out that it is a missed opportunity as it should have provided a larger stimulus to counter the impact of demonetisation and contracting private investment and boost growth. Your response.
When some people talk about a larger stimulus, it would have translated into a higher fiscal deficit that the government kept in mind. Universally, the maintenance of fiscal discipline by the government is something which is appreciated. Now, if we have to maintain fiscal discipline and provide resources for development expenditure, then we have to tread a fine line and that is what we have tried to do. So, instead of increasing the fiscal deficit, we have tried to prioritize our expenditure and allocate it to those schemes and sectors where we feel good scope for implementation, where there is maximum benefit derived by people, especially in the rural area and where we think that execution is not a big issue.
But do you think the measures taken will be enough to boost growth in the current circumstances?
I think the increased public spending in some of the sectors such as roads, railways, telecom, food processing, and electronic industry are meant to give a big push and give many economic opportunities to the private sector. Combine this with some of the taxation measures that have been taken, particularly with regard to the small and medium industries which is provider of maximum employment in the country. Even before the budget, there were announcement made about increasing the credit guarantee for the small and medium enterprises, which has been raised from Rs1 crore to Rs2 crore. Government in this budget has also provided for credit guarantee fund. These measures with liberalized cash credit limit should provide a big push. So all in all, the infrastructure spending which the government is undertaking and mind you, it is not only through budget, there are some extra budgetary resources also which have been mentioned in the budget, whether it is in terms of big irrigation projects, the dairy development funding and the borrowings which the railways, NHAI will undertake for funding their capital programme... All in all, it will mean more public procurement, more tendering by the government in which the private sector can participate.
Some critics also point out that we may never know the exact impact of demonetisation as it is the informal sector which is mostly hit for which there is hardly any regular, credible data available. Your thoughts.
There is no assessment which is yet available on the impact of demonetisation. We should wait. So far, whatever has come is by way of impressions and more due to emotional reaction—if I may say that—to the demonetisation initiative. Unless you have hard evidence, it is difficult to fully assess the impact of demonetisation. Initially for example, people started talking about reduction in taxes. But all the data which we got for November and December showed that state revenues have actually gone up. Even direct and indirect taxes of government of India have not shown any dip. But yes, there is a temporary effect, nobody can dispute that, especially in the informal sector as you mentioned. People who are dealing with perishable commodities, they have had some impact due to sudden withdrawal of cash from the system. All the measures that the government has taken in the past and now announced in the budget, I am sure it will rekindle and boost the economy.
One of the things that people said about the informal sector and the flow of workers from the production centres back to the villages. But if you see the MGNREGA data in November, December and January, it is not as if there was a big pressure on MGNREGA. The MGNREGA trend over the last few years during this season continues to show a normal trend. There is nothing abnormal about it. Even look at the agriculture data, people initially said that the farming sector has been affected very badly. But if you look at agriculture sowing, the cropped area—all that has gone up.
But the latest industrial production data shows contraction in December and manufacturing output which belongs to the formal sector especially has shrunk by 2%.
Well, that data, of course, is before us. But how much of it you can attribute to demonetisation, that is not clear.
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