Atul Joshi, Managing Director and CEO of India Ratings, a Fitch group company, believes that the Centre should create new public sector undertakings (PSUs) because, through the divestment process, it was leveraging those which were set up in the 1950s.

The new PSUs will help future governments to control its fiscal requirements, he said in an interview with BusinessLine .

On the expectations from the Union Budget, Joshi said that the government needs to create headroom for investment as demand pick up will not happen without government spending.

Given that corporates’ balance sheets were already leveraged, future investment by them is unlikely unless demand improved.

He expected the Centre to invest in sectors such as healthcare, infrastructure, railways, ports and urban infrastructure.

Commenting on the fiscal deficit situation, Joshi said that the estimate of 4.2 per cent this year could be achieved only by squeezing out Plan expenditure.

Joshi expected a less aggressive stance on fiscal consolidation going forward from 4.2 per cent to 3.9 per cent or else the journey to achieve eight per cent GDP growth would take longer.

The next challenge, he felt is to control the revenue deficit. The revenue base had not increased despite growth. The key is to plug revenue leaks and improve coverage as only three per cent of the population pay direct taxes. Direct tax constitutes 55 per cent of the total revenue.

Revenue as a percentage of GDP for India is 22 per cent, whereas for BBB rated (the least investment grade) countries it is 33 per cent. Excise duty as a percentage of manufacturing GDP has come down now to 13 per cent from 26 per cent in 2004. Customs duty too as a percentage of imports had dropped.

This, he said required recalibration/revisit of the duty structures, especially on high end durables and luxury items such as mobiles, luxury cars, refrigerators and televisions.

On debt servicing, Joshi said that India’s debt to GDP at 65 per cent is akin to countries with better sovereign ratings such as Germany/France/UK/US. However, interest to revenue at 22 per cent was far higher than the countries with similar sovereign rating.

On interest expenses, Joshi felt that the Centre needs to lower the average maturity tenor of G-Secs to some extent while ensuring that it did not result in a sovereign liquidity crisis.

The possible alternatives could be to reduce tenor, have put/call options in G-Secs, introduce floating interest rate G-Secs and actively manage debt.

These measures such as government spending to increase GDP, calibrated approach to taxation and savings on interest will help consolidate the Government’s balance sheet.

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