In an interview telecast on Doordarshan News after the Budget, Finance Minister Arun Jaitley emphasised that the Budget has the capability for job creation. On the fiscal situation, he asserted that the government may be theoretically facing a slippage, but the commitment to glide path remains. Jaitley also said introduction of long-term capital gains tax will worry big investors only. Edited excerpts:
This is the first time you have slipped meeting the fiscal deficit target. How do you explain this slippage and what would be the year-wise roadmap for the fiscal consolidation programme going forward?
You can theoretically use the word “slippage”. But essentially it is substantially statistical. This being the first year of the GST, this factors in only 11 months of GST. So, because of this, I am inherently Rs 36,000 crore short since the 12th month is not there.
Besides this, I was across the year running short as far as non-tax revenue is concerned, where I was short due to some dividends, early part of the year the economy was moving slowly, it has picked up recently. I was also running very short because the spectrum auction was deferred and there was pressure on the telecom sector, the RBI dividend itself was down. I have covered a large part of that through higher direct tax, through record disinvestment but some part of that remains. The main contributor to this — it should have been 3.2, but it is 3.5 — the .3 difference a large part of this is statistical since one-month of GST is in this.
As far as the future roadmap is concerned, despite expanding expenditure, I have predicted 3.3 for next year. I foresee 3.1 for the year after and then 3.0. So I think the glide path which has consistently been my commitment will certainly remain. This year, you can call it an aberration partly because of structural reforms and substantially because of this statistical switchover.
You have taxed the rich. You have not reduced the tax for big companies. You have imposed long-term capital gains tax on gains above Rs 1 lakh and you have given relief to smaller companies. Could you tell us about your taxation philosophy?
I firmly believe and I said right in the beginning that my eventual roadmap is to bring down corporate tax to 25 per cent and that’s also because of competitive reasons. There are countries that are bringing it down to 15 per cent, 18 per cent, 20 per cent, and therefore we are now competing with countries where investors have a choice. Last year, I took the first step that small companies up to Rs 50 crore turnover (would be taxed up to 25 per cent). This time I have taken it up to Rs 250 crore, which means the entire small, medium and upcoming sector are covered in this. I am gradually moving upwards.
Of the six hundred thousand companies which are filing returns, today 5.93 lakh companies I have covered. The 7,000 big companies are out of it, yet. I am not saying they will always be out of it, it has always been out of the roadmap. But, these 7,000 companies are those who actually avail of all the exemptions and they are actually paying 22-23 per cent tax. In effect, these 7,000 companies are paying less than 25 per cent. I had coupled it with a suggestion that the exemption will eventually go. I can’t suddenly remove the exemption because they have a sunset date. One expires five years from now, another seven years from now. So as the sunset keeps approaching, we will keep doing away with the exemptions.
As far as long-term capital gains are concerned, if you looked at figures I quoted in my Budget speech last year, Rs 3,67,000 crore is the profit that the large companies and large investors have earned. They could be international investors or domestic, mostly corporate and LLPs (limited liability partnerships). These are wealthy people who brought in investment into the equity market, they earned such huge amounts and not a rupee of tax is paid. Is it equitable that Rs 3,67,000 crore is what you earn in a year and don’t pay tax? And therefore somebody had to bite the bullet and someday I had to be bitten. And I think this was the most appropriate moment for it. I think the investors also knew that sooner or later that is coming but I wanted to be fair to them. I did not want to commit the mistakes that my predecessor had done, which was putting anything that could have a retrospective effect.
There is a question about the securities transaction tax …
There is a legitimate question whether the two should overlap or not. Let us see how we proceed with this. Let’s see how the first year’s collections are and as it picks up, we can take a call on this later.
It is being said that this is an election budget. What do you have to say about that?
I am not linking this Budget with the elections at all. If you look at our economy, our services sector is steady and doing well. The manufacturing sector has seen improvement in the past few months. So it is natural that you take into consideration the weakest link in the economy. There was a country-wide worry about farming. So, to double the farmer’s earning, we are focusing on giving them irrigation facilities, clean toilets, better roads, houses, electricity supply and health facilities and ensure that they get the correct rates of their produce. There is a notion that if we forgive the loans of farmers, that will solve all problems. But it may recur after two years. So, we are trying to boost revenues from farming and gair krishi (non-farming) sectors.
Another sector where we have given importance on is the social sector. Ujwala Yojana was successful, so we enhanced its allocation. In relation to your first question, agar humlog uss saadan ko healthcare mein laga sakte hain (if we put that money into healthcare), then of the 25 crore families in the country, of which 10 crore are the poorest, will have an insurance card each, and will be able to avail treatment worth Rs 5 lakh in any hospital. If we can do this, it could set an example for the world that whether Obamacare was successful or not, Modi care certainly was successful.
How would you get the funding for Modi care? Iska praroop kya hoga? Second, how would these be delivered to the people?
See, these are operational details. All these schemes will be government-funded. This was a country which did not have any social security. So, our move is a big step in that direction. By collecting the revenues from the surcharge increase, and LTCG tax, if these resources are used in increasing the farmers’ incomes and for their healthcare, it could improve their situation drastically. And, through government institutions, the bigger base of insurance we can have, the cheaper the premium rates will be. The list of hospitals will include government and private ones. The health ministry is working out details of this plan and we want to implement this as soon as we can.
Is it a short-term plan to hike MSP? Second, if we look at macro economic cycle, there is a fear of an increase in inflation. Don’t you think an increase in MSP will add to that worry?
Bade hue food keemat ka thoda asar padta hai (There is some effect of MSP on food inflation). But it affects other things as well. Our country has had a history of high inflation. We have come to a point where inflation can be contained between 3 and 4.5 per cent.
I don’t think MSP will solve all problems of the farmers. But MSP will act as a pillar in that direction.
The middle class is complaining that there is nothing for them in this Budget. There is no relief on the Income Tax slabs and cess has been increased.
Last year, I had reduced entry point income tax from 10 per cent to 5 per cent. India is the only country where income tax rate is 5 per cent — it is the lowest (tax) slab in the world. So, it was not possible to lower it any further. Second, I chose three sections that needed relief this time, and the middle class falls in that too.
For the entire salaried class, which includes pensioners also, comprising 2.5 crore people, I have restored standard deduction of Rs 40,000 (in income tax). For senior citizens, I did not touch the small savings rate of 8.3 per cent. The cost of medicines for their treatment, have been exempted up to Rs 50,000. In case of hospitalisation, there is an exemption of up to Rs 1 lakh.
Have you budgeted the crude oil prices?
Ideally India would be comfortable with anything about $60. If it moves up to the present level, it’s a shock we will try and absorb, though it has some inflationary impact. But if it rises beyond that, we will see. Up till now, we are bearing the shock.
Job creation was cited as the biggest worry. There were agitations in Gujarat regarding this. Do you think there is enough in the Budget to boost employment and private investment?
The budget has the capability. The Budget gives boost to infrastructure and spending has been allotted to grameen khestra (village sector). This Budget gives financial incentives to those creating jobs. Besides, after structural reforms, our economy that was growing by 7.5-8 per cent, fell to about 6 per cent. Now again, it is going towards an increase of 7.5 per cent. There was an increase in exports and also growth in the global economy as well. All these contributed to our growth.
A big factor was the condition of banks, which were not being able to drive the economy to a large extent. After recapitalisation, our banks are once again in a position to give increased lendings. Their lending capacity has shot up.
Given the geopolitics in the Indian subcontinent, would you say that the expenditure rise in Defence could have been a little more that the 6% allotted?
As someone who has had the responsibility on two occasions and I know it for certain that Defence needs more money. But then, I think we are in a catch-22 situation, where how much revenue you get, how much tax you realise. I am quite sure that this time the surprise package for the coming year is going to be the GST. Just as income tax saved us last year, this year, I expect GST to save us now because from today, anti-evasion measures are being put in place. And once GST collections get bumped up, I think I would be too willing to allocate more for Defence, as per the requirement.
There were no big reform announcements one associates with your Budget.
I think the first four Budgets I had a series of structural changes and therefore, in one of the opening paragraphs I said this is the year of consolidation.
Two things that are leaping out are merger of public sector insurers. What is the timeline on that? And on disinvestment, there seems to be a long list.
Just as on life insurance you have the private sector, you have the LIC as a big giant that is capable of huge life insurance support. Now, outside that life insurance, India is an uninsured society. Now, we have started insuring crops, and in this Budget, we have started insuring health. The way we are heading, in the coming years, insurance will go up manifold. We need competition in the insurance sector too.
During Vajpayee’s government, there was a lot of noise regarding disinvestment and privatisation. In those 5 years, there was disinvestment of about Rs 26,000-Rs 27,000 crores. Last year, we had disinvestments of about Rs 45,000 crore, this year the figure was about Rs 1 lakh crore. We have earmarked several companies for privatisation. We want privatisation of Air India as well. The airlines sector is becoming a success story in this country. Now if Air India can become a powerful player in the industry, it will be great.
Apart from Air India, which are the other companies you are trying to privalise?
Niti Aayog has made a list and we will see which ones can be privatised and a decision will depend on that.
On long-term capital gains. A lot of people even from small cities had started investing in SIPs and equities. There are a number of middle class, small savers who participate in the market. Don’t you think this Budget will affect them?
An income of up to Rs 1 lakh is tax-free, so those earning small amounts from the stock market will not have to pay anything. Only the big corporates and the LLPs will have to worry about this.
You have spoken about a comprehensive gold policy. Can you tell us a bit more about this. And second, we have seen a lot of ups and downs in bitcoins. You did not ban it, but just said it is not a legal tender. Why not ban it?
We want to discourage people (from using bitcoins). A government committee is looking into this and a decision on this will be made.
To encourage people to monetise the gold that can contribute in the country’s economy, we came up with a gold monetisation policy and gold bond schemes three years ago. We got some success, but it was less than desired. The mention of the policy was an indication that the gold policy can be made more attractive for people.