Note ban dividend hasn’t been factored in Union Budget 2017: Shaktikanta Das

New Delhi: Economic affairs secretary Shaktikanta Das, who recently got a three-month extension until 31 May, is an old hand in the finance ministry. He defends the budget as fiscally prudent and hopes growth will pick up next fiscal year. Edited excerpts from an interview:

Some experts have pointed out that the increase in public expenditure may not be enough to boost economic growth at a time when private investment is contracting.

If by merely increasing government expenditure growth were to happen, then every country will record double-digit growth. We have to keep in mind our high level of interest payments, it’s about 24% of our total expenditure. So we have to ensure our debt is sustainable. After five years, 10 years, all the money will go to interest payments. So we have to remain fiscally prudent. We cannot sacrifice the interest of our future generations for the benefit of today’s generation. So a sustainable debt is very important. At the same time, sectors of the economy which need funding, adequate funds have been provided. But by merely stepping up allocation, it is not necessary that you will attain higher growth. There is no one-to-one correlation. You need to spend on critical sectors and spend well.

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I would expect growth to be upwards of 7% in 2017-18. The remonetization process is near complete, the budget has been well received. I am sure the economy will bounce and will record 7%-plus growth rate.

Are we inclined to accept the N.K. Singh Committee’s suggestion of debt to GDP ratio as a benchmark for a new fiscal discipline road map?

Debt to GDP is an important fiscal parameter, there is no denying that. Let’s study the report as I don’t want to take a guess at this point.

Have the fiscal gains from demonetization that the finance minister spoke about, through a one-time dividend from the Reserve Bank of India (RBI), been factored into the budget?

We have not factored that in. Whatever we get as a one-time dividend from RBI, whatever higher tax collection we get from Garib Kalyan Yojana, will come as a bonus. It is difficult to make an assessment about how many people will take the benefit of Garib Kalyan Yojana. We will know only on 31 March. In all such schemes, the response comes in the last 10 days. We have assumed dividend from RBI this year almost at last year’s level of around Rs66,000 crore. Let’s see.

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By when do you think RBI will be able to release more data on demonetization?

The window technically is now open till June. RBI is engaged in counting notes. Let that be complete. We will get a clearer picture. The bigger thing to keep in mind is that the process of remonetization is almost complete. I don’t know how much time they will take.

How soon can the electoral bonds be issued? Will the government pay interest on the bonds?

The bonds will be issued as soon as the finance bill is passed by Parliament. There will be no interest rate on electoral bonds. Why should interest be paid? We are only enabling donors to maintain their anonymity.

How will inter-ministerial consultations be carried out once the Foreign Investment Promotion Board is abolished?

Either the sectoral regulator will be in charge of the government approver or the concerned ministry or department. It should also fit in under the regulator’s responsibility under individual laws. You cannot give responsibility to a regulator beyond what the law permits. For certain cases, you can authorize RBI which is in charge of FEMA (Foreign Exchange Management Act). Anything to do with stock markets, you can ask Sebi (Securities and Exchange Board of India) to be in charge of it. There will be less of inter-ministerial consultation. Wherever security clearance is involved, they will take it (from home ministry). The announcement is more to provide a signal to foreign and domestic investors that we want to create a hassle-free environment for investment.

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What were the issues before the finance ministry while preparing the budget and have you addressed them in the budget?

First factor which was to be kept in mind was to remain fiscally prudent. Second, to step up public investment in critical sectors of infrastructure and certain select social sectors such as agriculture and rural development. The third factor was to continue with the process of economic reforms. The budget addresses all the three aspects. With regard to fiscal prudence, the fiscal deficit has been kept at 3.2% of GDP which is well within the range given by the N.K. Singh committee. With regard to stepping up public expenditure, infrastructure spending has increased, agriculture spending has increased, allocation for road, railway, ports, irrigation, have been stepped up which in turn will generate a lot of economic activity. On reforms, we have announced a contract farming law, perishables have been removed from APMC market requirements. It also talks of UGC reforms. It talks of amendment to the Airports Authority of India Act. Then in the financial sector, FIPB was done away with, oil major is being created, and there is the amendment to arbitration and conciliation act to deal with PPP disputes.

Almost under similar circumstances when growth was slowing down and private investment was yet to pick up, finance minister decided to stick to the fiscal consolidation road map. So what has changed this year?

You cannot say that the finance minister has deviated from the fiscal path. He has basically remained within the number which was given by the N.K Singh committee. Even this year, the finance minister has said that it would be our effort to improve upon the fiscal number. The following year, fiscal deficit will be at 3% of GDP.

So basically we have partially used the escape route provided by the N.K Singh committee?

No, we have not used the escape route. We have not yet studied the report in detail. But what we are saying is that given the current requirement of the economy, fiscal deficit of 3.2% of GDP is very appropriate and can be considered as fiscally prudent. Because you cannot also choke growth because if you choke growth, your tax revenue will be adversely affected. In that sense, there is no deviation.

Private investment has started contracting from this year. Is that a cause of concern?

So far as the government is concerned, it is providing an enabling environment—where there is no hassle to making an investment, there is ease of doing business, there is less of government interference, no inspector raj, a friendly tax environment. Government is also stepping up public expenditure which in turn will give a spurt to private sector investment. When you spend more on roads and railway construction, the demand for cement and steel goes up. Government has reduced corporate tax rate for companies with turnover of ₹ 50 crore or less. They will be in a position to invest more now. So government can only give an enabling environment, conducive atmosphere and support by way of increasing public expenditure. Beyond that it is for the private sector to rise up to the occasion and invest.