Interview with Shaktikanta Das: ‘If needed, Rs 5-7K cr can be added for PSBs capitalisation’

Also, with the amendments planned to the RBI Act, the government expects the Monetary Policy Committee to become functional by December, Das said in an interview.

Economics Affairs Secretary Shaktikanta Das

The government may provide Rs 5,000-7,000 crore extra, if needed, over and above the Rs 25,000 crore announced in the Budget to capitalise state-owned banks in 2016-17, Department of Economic Affairs Secretary Shaktikanta Das said. Also, with the amendments planned to the RBI Act, the government expects the Monetary Policy Committee to become functional by December, Das said in an interview to Sunny Verma and Aanchal Magazine.

Excerpts:

Can you elaborate on the concept of having fiscal deficit range as the target?

The range concept is one of the suggestions. It is not as if the government has already decided the range concept. The rationale is whether we should have a fixed number for fiscal deficit. What it means is that when economy is doing well, when revenue collections are buoyant, government can afford to target a better fiscal deficit, let’s say 2.8 per cent. When revenue buoyancy is not there, growth is low, when there is need for government to spend more money, then government can go from 3 per cent to 3.2 per cent. So there is a need to review this fixed number business, and instead, it may be more practical and reasonable to have a band. Band also, again, has to be very narrow. It cannot be a very wide band, which will make the target meaningless. Given the fact that there is so much of uncertainty in global economy, you need that kind of policy space.

When will you appoint a committee to review the Fiscal Responsibility and Budget Management (FRBM) Act ?

The committee will be appointed within a month’s time and it will, obviously, consist of outside experts and once their recommendations come, we will take a decision. The committee will comprehensively review the working of the FRBM, how it has worked over the last 10-11 years. Today India continues to be fiscally stable, India has inherent resilience, one of the reasons is the application of FRBM law. Otherwise just imagine if the state deficits and Central deficits had been going haywire, then we would have been in a far worse situation.

On banking side, market reaction is that you have underprovided capital. What is your sense on this? And secondly, in the Economic Survey there is a suggestion that RBI capital can be redeployed for recapitalisaiton of banks …

That is a suggestion only which the Economic Survey has made. There is no such policy at the moment. That’s a hypothetical question. With regard to the RBI recapitalisation, ‘Indradhanush’ said Rs 25,000 crore for the recapitalisation, which we have provided. RBI’s decision (Tuesday) will add another Rs 25,000 crore or more, Tier I capital of PSBs. So, it is Rs 25,000 crore plus Rs 25,000 crore and that makes it Rs 50,000 crore. The Tier I capital goes up and at best if another Rs 5,000-7,000 crore are required next year, in a Budget of Rs 19.78 lakh crore, we can always find some savings here and there to give it and the government is committed to give that.

Will the government sell SUUTI holdings next year?

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At the moment, SUUTI is not under consideration because we haven’t reached that kind of a situation. If we need, we will use it … We are confident that we will meet our strategic (disinvestment) target this year (2016-17) without taking into account SUUTI.

When will the Monetary Policy Committee become functional?

The RBI Governor will have casting vote in the Monetary Policy Committee, which will have 3+3 (six) members. As soon as the Finance Bill is passed and notified, the Committee can be notified but we have to nominate three members. I think by second or third quarter it will be functional.

Has the government been conservative in its assumption of real GDP growth for the next fiscal?

This year we are expecting 7.6 per cent growth as given by the CSO (Central Statistical Organisation). Next year our expectation is that it will be upwards of that. I mean government did not want to over-project, so very conservatively government has projected 7.75 per cent (for 2016-17). Inflation should in the range of 4-5 per cent for the next year.

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One clarity missing in the Budget is how much has the government provided for Pay Commission and OROP?

Defence OROP has been fully provided for. As regards 7th CPC, interim provisions have been made in the demands for grants of various ministries. Now, I would not like to mention a number or a percentage because that will lead to unnecessary speculation about what the government is eventually going to decide. The recommendations of Committee of Secretaries has to come, after that the government will consider and take a decision. At this point, if we give a number, somebody may say that you have underprovided, somebody may say you have overprovided, then somebody will interpret by saying that government is not doing enough. It will lead to unnecessary debate which is unwarranted and which will be premature.