Back‘We’ll scale $5 trillion peak with 11-12% nominal growth, 4-4.5% inflation’
Finance secretary Subhash Chandra Garg says the budget policy announcements will create an atmosphere where growth can be expected to go up
PremiumNEW DELHI : Subhash Chandra Garg, the soft-spoken finance secretary, holds a key post in finance minister Nirmala Sitharaman’s budget team. Garg’s recent strongly worded dissent note before the Bimal Jalan committee on transfer of excess reserves of RBI to the government has become a headache for other committee members. Garg’s predicaments are obvious. In a fiscally tight year when slow economic growth has led to sluggish revenue collection, the government would need a sizeable transfer from RBI to fund its ambitious social sector schemes and meet the fiscal deficit target of 3.3% of gross domestic product (GDP). In an interview, Garg explains the vision behind the budget and clears the air on some of the budget numbers. Edited excerpts:
What was the broad thinking that guided the finance ministry while preparing the budget?
The broadest idea is that the country is now adopting a very clear vision and goal of making India a $5 trillion economy by 2024-25. Everything else that we do should be directed towards achieving that. The second broad goal is that every Indian should be free of poverty and all his basic necessities should be met in a qualitative manner. That includes electricity, gas, water, road education, health. Everything should be available to him, not as a charity but in a manner where he pays for it, he values it and he consumes it. These were the two broadest visions and objectives behind the budget this time.
Between the interim budget and the full budget, most analysts and even RBI have pared down their growth forecast. How is it that the finance ministry has increased the nominal GDP assumption from 11.5% in the interim budget to 12% in the full budget?
Actually we have not increased it. We have also reduced from 11.5% to 11%. What you saw in the Budget At A Glance compared the advance estimates of 2018-19. If you compare it with the provisional GDP numbers for 2018-19 which were released on 31 May, the increase is only 11%. We have stated that in our fiscal policy statement. The convention is that the budget papers be compared with the advance estimates, which were released at the time of budget making. We consider that as if the budget were presented on 1 February because this is for the entire year. This is not from 5 July onwards. That’s why we don’t even write the provisional numbers in the budget documents. We still stick to the revised estimates.
Because you have not taken into account the provisional revenue estimates, critics say that you are actually underestimating the kind of disruption that the economy went through in 2018-19. The tax revenue collections were down by more than ₹1 trillion from revised estimates.
Here again, for the budget estimate numbers, we have worked on the provisional estimates of 2018-19, not on the revised estimates of last year. Taking that as the base, we have calculated what should be the reasonable growth in the current year. For that, growth in direct taxes comes to 17.5% and 15% on the indirect taxes against provisional estimates of last year. I think they are fairly reasonable estimates.
What will be the key growth drivers this year?
The government has put out a very strong policy intent to buttress growth. This $5 trillion target is basically to buttress growth. Let’s not devote too much time to temporary factors.
Growth estimates, according to budget documents for 2020-21 and 2021-22, are mentioned as 7.3% and 7.5%, respectively. To achieve the $5 trillion target, we need 8% growth. Does achieving the $5 trillion target seem difficult?
Budget estimates are on a conservative side. Now the budget policy announcements will create that kind of an atmosphere where growth can be expected to go up. The budget will capture this when it happens.
Do you expect growth to reach 8% next year?
To me what matters more is nominal GDP. If we continue to get 11-12% nominal growth and keep inflation at 4-4.5%, we are safe.
However, 4.5% inflation will not yield any interest rate cuts by RBI because the threshold is 4% inflation.
No, the threshold is 6%.
A lot of concern has been expressed about the overseas sovereign bond given the bad experience that Latin American countries have had.
Are you listening to people expressing concerns or the other side also? (smiles) I don’t find most of those concerns to be real. These are more apprehensional types.
We are not going to borrow from abroad like the Latin American countries, are we?
Of course not. If people attribute the problems in Latin American countries only to their borrowing abroad, then they are again mistaken. It was basic unsustainability of their debt, not the foreign borrowing alone. It was adoption of a dollar peg of peso by Argentina, which got them into such a quagmire. So this is not the borrowing factor alone. Most countries have overseas sovereign borrowing. They manage their debt very prudently. We should also take advantage of the lower interest rates. If we have dollar-rupee depreciation in the historical range and believing that the growth story will remain strong, we can hope for a more stable rupee going forward. I have been saying ad nauseam that we are already exposed to foreign investment into our G-Secs. So how different is it?
But how much of our total borrowing can be sourced from overseas?
Let’s wait for it. We will work it out.
Can it be 5-10% or it can be more than that?
I don’t think it will be more than 10%. All these need to be formally decided.
Will it be gradually increased or will it be at a fixed level each year?
Of course, we have to make a beginning first. It has to be done in a gradual manner.
Can it exceed 10%?
I don’t see it. It’s not a decision made yet, but I don’t see it exceeding that level.
This is the final year of the 14th Finance Commission and from next fiscal onwards, the recommendations of the 15th Finance Commission will kick in. There is a demand from states that their share should go up to 50% of the central taxes from 42% at present. What is the finance ministry’s view?
That is the finance commission’s job. They should hear the conflicting demands rightly. The states will always demand more, the centre will always say it should be reasonable.
On the Bimal Jalan committee, I know you can’t reveal the details, but will the government abide by the report or can it overrule it also?
This is a very hypothetical question. The Jalan committee report will be discussed by the board of RBI. They will take an appropriate call.
So RBI will take a call, not the finance ministry or the government?
I don’t think that it is probably required to be discussed by the government.
But your dissent note has created quite a flutter.
I don’t know who says this.
Have you not given a dissent note?
The committee is still deliberating. Where is the occasion?
There are a few foreign direct investment (FDI) policy announcements in the budget. What exactly are we trying to achieve?
The finance minister has announced that we will examine and review FDI in aviation, insurance, and media.
Does it include print and electronic media ?
What it mentions is media. So let us wait for the formal review to take place.
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