Finance Secretary T V Somanathan on Wednesday said fiscal consolidation exercise is good for the country and not because it will appear good to the rating agencies. In an interview to businessline, he also clarified that food subsidy number in the new Budget does not mean reduction. Excerpts:
After receiving a record surplus transfer from RBI, the expectation was that there will be more expenditure, rather there has been focus on fiscal consolidation. Your take?
It is not correct. Actually, the extra income was about 0.4 per cent of GDP, out of which point two has been shifted to consolidation and point two has been spent. So, it’s a balance half and half roughly.
It is being said that the Budget has been very conservative in projecting nominal growth estimate. Same is true with estimation or real growth rate in the Economic Survey. There is still an anxiety about the current state of the monsoon that could pose a risk for these projections. What do you have to say?
I confess I do not have much information about the monsoon. I would say that we have not taken a very ambitious growth forecast. I am saying that that growth assumption of 10.5 per cent nominal can be reached even with a slightly lower real growth projection. 6.5 per cent growth will also get us to 10.5 per cent nominal. Even at 6 per cent it is possible we will reach 10.5 per cent nominal if inflation is 4.5 per cent. So, I think our growth estimates are fine. And I don’t see much risk of undershooting the revenue numbers.
Four months of the current fiscal year are over. Is there any change in the cash management guidelines for the remaining period of the fiscal?
I don’t think there will be any change until the Revised Estimate stage. But we will review the matter. As of now, we will continue with the same.
Budget figures show that the food subsidy has been lowered. What do you have to say?
Food subsidy reduction is largely because there were certain arrears to be paid to the States for old procurements which were paid last year. There were certain adjustments of past procurement dues for which States had given late claim. The claims were dating back to many years. The claims get audited and only after that, they are paid. There was a backlog of claims which were paid in the last financial year in March. So, you see a slightly higher number in last year’s actuals. It is not much of a change.
And what about fertilizers?
That reflects expected lower import prices.
Have you taken any level for crude prices in calculating various numbers?
We don’t need to. Because today we have no subsidies on fuel. Our excise duties are fixed, their specific duties, they’re not ad valorem. So, I don’t need to make any assumption about fuel price. Fertilizer price, we have to make assumptions. We have made certain assumptions that they will be broadly at current levels.
Coming to overall fiscal, if the Centre’s fiscal has gone down to 4.9 per cent, what about projection for general deficit?
We don’t work in terms of general fiscal deficit. But States are constrained at 3 per cent plus point five for power reforms if possible. So, the average level of the states will be somewhere between 3 per cent and 3.5 per cent. And that is done through the borrowing permissions under Article 293.
I asked about general level as some time back there was outlook upgrade by S&P and now there is expectation that rating action possible within two years. Is there any kind of messaging to rating agencies for upgrade?
We are not sending any message to rating agencies. I have no faith in the rating agencies recognizing these things, until and unless they wish to do it. So at least we are not attempting to send any message. These things are done for their own sake. Fiscal consolidation is done because it is good for India not because it will appear good to the rating agencies. We are doing it because we want to keep our debt burden under control because we want to keep interest costs under control. That is the reason for doing it.
From FY26, our effort would be to more on the debt to GDP ratio. So, is there a kind of policy shift?
Yes, there is a shift. There is a shift to a more flexible fiscal deficit target but with a strong focus on reducing the debt to GDP ratio. There is a subtle difference. We will still have fiscal deficit targets. But should it be a rigid numerical figure, or should it be based on prevailing growth rates, inflation rates, interest rates, all of which influence what is the sustainable fiscal difference. A country with a faster growth rate can afford a higher deficit. A country with higher interest costs can afford a lower fiscal deficit. So, India is better off in terms of the growth rate, but worse off in terms of the interest burden. This balance changes from time to time. So, instead of taking a rigid numerical figure, we will assess it and calibrate it in a way that our debt will keep coming down.
Do you think, FRBM, enacted in 2003 has been has lost its relevance and we need a new law?
Not necessarily, I think the existing act can continue to be used in this manner.
There is a provision of ₹1.50 lakh crore, 50-year interest free loans for States, out of which half are tied and remaining untied. What kind of response has it been till now?
We have not yet given the guidelines for the tide part. That will be issued very shortly. For the untied, there has been a good response and considerable disbursements have happened on the untied portions. The first instalment has gone to almost all the states while the second instalment will be claimed when they have utilised the first instalment.