Economic affairs secretary Subhash Chandra Garg.
Economic affairs secretary Subhash Chandra Garg.

Commitment to fiscal consolidation extremely strong, says Subhash Chandra Garg

  • For the current year, there’s actually a reduction in market borrowing by 1.06 trillion
  • The net market borrowing is very much under control and there is a small increase

NEW DELHI : Economic affairs secretary Subhash Chandra Garg, one of the chief architects of the budget, said the government has not shifted any expenditure to the next fiscal year to keep deficits under check. In an interview, Garg said providing higher spending for the farmers’ income support scheme has led to lower allocation for capital expenditure next year. Edited excerpts:

Analysts fear that the sharp increase in gross borrowing next fiscal year may lead to increase in bond yields?

For the current year, there’s actually a reduction in market borrowing by 1.06 trillion. We haven’t done buyback programme of 71,000 crore. We are funding additional 51,000 crore debt through small savings. For next year, we have a large repayment programme which is not a net draw from the resources of the market. Therefore, it doesn’t affect. The net market borrowing is very much under control and there is a small increase.

The budget is also said to be inflationary with higher spending next year. Will it not force the Reserve Bank of India to go for a longer pause on interest rates?

The interest rate part I will not answer because that is for the monetary policy committee to decide. As far as higher fiscal deficit is concerned, it is 0.3% and its relationship to inflation is not that sharp at all. The inflation in the Indian economy is relatively very low today. It’s nowhere close to the 4% target. It can go up to even 6% within the band of 2 percentage points. So the deficit maintained at the same level next fiscal is in line with the glide path. It’s implication for inflation is minuscule.

Moody’s has called it credit negative on sovereign rating? Is that not worrying?

They haven’t looked at the final print perhaps. It’s only 0.02% increase in deficit. They should take note that we are on the glide path. We have shown our commitment that by 2021, the fiscal deficit will be brought down to 3% and therefore the government’s commitment to fiscal consolidation is extremely strong.

The quality of government spending is also projected to deteriorate with capital expenditure projected to grow only at 6.2% in 2019-20 against 20.3% in the previous fiscal year. What’s the logic?

But in real terms, it is still positive increase in capital expenditure next year. A lot of infrastructure is now created by the public sector and private sector. It's not like government program alone is for infrastructure. We have to provide for the farmers scheme, so on revenue side there is higher growth.

Do you think the 20,000 earmarked for spending this year for the farmers income support scheme will be spent fully this year or thee will be a saving on that?

When we provide for a scheme in the budget, you expect it to be spent. But it's a new scheme. My sense is the agriculture department is quite ready to implement this scheme.

How much subsidy shifted from 2018-19 to next fiscal?

Nothing much. We don't even take that into account. Some bills keep on coming. Not all bills upto 31 March is received during the year. Every year some spillover takes place which is normal course of business. It's not unusual.

But the CAG has said that the government does shifting of subsidies to next year to meet deficit targets?

It cannot be a long term solution. If one shifts expenditure from current year to the next, next year the expenditure would have to be more. So no advantage accrues through shifting. What CAG probably has said is sometime back some of the expenditure were met through issue of fertilizer bonds and oil bonds. This is not happening in last couple of years.

But is the Food Corporation of India fully funded?

FCI is fully funded. They have debt for working capital purposes and they should have it. That’s what they do. But beyond that nobody is shifting anything to them to pay for the government.

Why does the Budget assume a lower nominal GDP growth next year at 11.5% compared to 12.3% in 2018-19?

Last year also we had estimated 11.5%. CSO said it is 12.3% which we have adjusted for the current year. For next year, we have assumed GDP growth of 7.5% and inflation of 4% and therefore 11.5%. There is no point of being too optimistic or pessimistic. It is good to be realistic. That’s why it is a fair estimate.

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