Finance Minister Arun Jaitley has said the Budget has taken many steps that are necessary but were not taken in the past 10 years, be it in sectors such as insurance, defence, real estate investment trusts, simplification of tax administration, transfer pricing. Excerpts from his post-Budget interview to mediapersons:
As part of your Budget speech, you said there has been a lot of expenditure compression in achieving the fiscal deficit target last year…
I did not say that. What I have said and I have said it earlier also is that there are two ways of tackling the fiscal deficit — you either spend less or you earn more. The ideal situation is you should earn more because if you spend less then you are contracting expenditure and then you are contracting some parts of the economy. But neither the Economic Survey nor have I today indulged in any form of criticism of the past or taking digs at the past. I have instead looked at the unresolved issues that they have left behind and tried to address most of them in a period 45 days.
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The Budget has retained the provision of retrospective taxation that was widely expected to be removed…
It is very clear that with regard to retrospective taxation, there are some crystal clear issues which come out. Does Indian Parliament have a jurisdiction to legislate retrospectively? The answer is yes, it has and I can’t curtail that jurisdiction, I won’t even try to. Two, will this government rely on the retrospective taxation legislation? The answer is no, ordinarily, we will not legislate to create fresh liabilities. This actually means that if some old taxes are being collected for the last 40 years and some technical problem arises, you can correct that. But will we create new liabilities with effect from a back date? The answer is ordinarily, no. Three, if the 2012 amendment remains, will fresh notices be issued under those? The answer is that assessing officers will not issue these notices. They will report these cases to the Central Board of Direct Taxes, which will have a permanent mechanism to process them. So these issues are clearly resolved. What happens to the past? The past is pending in courts or other tribunals. We will wait for the judgment and the legal process can resolve those cases.
The Budget has also announced that the government will increase foreign direct investment cap to 49 per cent in the insurance sector. Is there some re-thinking by the BJP on that?
What I have said reflects the policy of the government. This issue has to go to Parliament. We plan to bring it in soon and I am not going to spend too much time on it. My proposal is to permit FDI with a cap of up to 49 per cent in the insurance sector. It is a clear proposal. At present, we have said either category — FII or FDI can be 49 per cent.
Do you have a timeline for introduction of the goods and services tax (GST)?
On GST, there are two issues. The first is that states want compensation for phase out of central sales tax in order to trust the Centre. Their stand is reasonable. I have inherited therefore a bill of the past and I need time to mobilise resources. The credibility of the Centre depends on how fast I mobilise these resources and at least have a roadmap for giving the compensation. Once I establish my credibility with the states, which I hope to do during the course of the year, I will then bring the Constitutional amendment and the concerned legislation.
Then there is a second issue that states want some items out of the ambit of GST. That’s what the empowered committee has also said. We will then see what is to be done with it — we will have to see if we can get an ideal GST or a good GST.
Some of the states, particularly two BJP-ruled states have opposed GST? Are you more hopeful now?
That is what makes me hopeful so that I can find some ease in persuading them. And since one of them is Gujarat, I will use others in the government to also persuade them.
What can we expect in the banking sector vis-a-vis consolidation and mergers?
The consolidation that will take place now will have some big banks and some small ones … for example small subsidiaries of a big bank … Anything can happen now. It is entirely up to the banks on how they wish to proceed. I intend on giving them a lot more autonomy.
But the important reform with regard to banks is the inclusion—because if they have more money, they will be able to expand faster. This means that I am not going to get the government’s shareholding below 51 per cent but over the next three years, they should have enough capital to role themselves out.
The petroleum subsidy has been pegged at Rs 63,426.95 crore for FY 15. Given that Rs 30,000 crore has been paid as fuel subsidy for the last fiscal, how will this work out?
We will look at the accounts at the end of the year. Since the Budget is presented in February, the fourth quarter subsidy can be billed to the next fiscal. This is not an unusual practice, it has been done before. Now petrol prices have been freed up, diesel prices are also likely to be freed up soon. If the Iraq situation gets worse, we will deal with the situation.
Some of the international rating agencies have expressed doubts over the government’s subsidy reform plan and its impact on the fiscal deficit?
I have not spelt out the subsidy reform plan in detail as I have provided for an Expenditure Management Commission. If anybody feels that in 45 days, you can come out with a scheme of rationalisation of subsidies, which people in the last 60 years have not found an answer, we must rate the agencies then!
Prime Minister Narendra Modi had spoken of a bitter medicine for the economy. Do you think the Budget has been able to administer that?
Taking important steps that are necessary, which in the last 10 years were not taken. Each one of these are major issues, be it insurance, defence, real estate investment trusts, retrospective tax amendments, simplification of tax administration, transfer pricing… In 45 days, we have tried to address each of them and the we have given an impetus to the manufacturing sector. These are very important decisions. Our government is very clear that the common man can not be burdened with too much tax. So as far as individual taxation is concerned, we have tried to rationalise these. We have removed inverted duties.
Are you hopeful that the Reserve Bank of India will help spur economic growth?
That depends on whether inflation moderates itself. If that happens, then the RBI will certainly help and we will be very pleased.