In an interview with P Vaidyanathan Iyer and Surabhi, MoS, finance, Jayant Sinha talks about the challenging task of rolling out goods and services tax by April 1, 2016.
Given the mandate of the government, could more bold reforms have been taken on subsidies?
We have taken many bold steps in subsidies. But subsidies are very important for the poor and deprived and we can’t cut the level of subsidies willy-nilly. We are streamlining the system, capping allocations and making it leakage proof. Therefore, we feel that the level of subsidies will be significantly lower.
What about subsidies on fertilisers and LPG?
Fertiliser subsidy is something we considered in detail but we could not find an efficient and streamlined way for making it work. And in any case, because we were taking on subsidies on fuel, food and gas, we felt the next wave would be kerosene and fertiliser. We can’t do everything overnight, we have to put in place the systems and technology so that people get the benefits they deserve while streamlining the system. LPG was doable and we have done LPG. For kerosene and urea, we still have to find a good roadmap.
There is little clarity on corporate tax rate cut and elimination of various incentives.
It is by design that we have stated it how we have. There is complete clarity that we will, over four years, figure out which exemptions to remove, and simultaneously lower the tax rate. The glide path has to be revenue neutral as we still have a fiscal deficit. But we did not want to announce it in haste as we have to work it out and talk to stakeholders.
Your father and former FM Yashwant Sinha has raised a number of issues with the Budget — deviation from the fiscal roadmap, dumping the Direct Taxes Code and lack of tax exemptions for interest payments on housing loans.
Those are very reasonable statements. My father is very much a fiscal consolidation hawk and he is the one who introduced FRBM. He is of course right; we have to get the revenue deficit down. Perhaps what he doesn’t have access to is the data that we have. For example if, we take Rs 37,500 crore or 0.3 per cent of the GDP – the difference between 3.6 per cent and 3.9 per cent of the fiscal deficit — and see the economic and social returns you get by investing it in things like the electrification of railways, the multiplier effect is well worth deferring the fiscal consolidation by a year. That is a balancing act and we did that. While we would like to provide more relief to the housing sector, we had raised the exemption on housing loan by Rs 50,000 in July last year and so we could pause on that. Also on the trade-off between fiscal consolidation and tax giveaways, it is better to err on the fiscal consolidation side as that creates the room for RBI to ease its monetary stance and cut rates and that’s what has happened. If we are deviating from fiscal consolidation, it is because of very high opportunities.
He also expressed huge scepticism on GST…
GST is challenging — not because states don’t support it, states do support it, but simply because we have a lot of pending legislation in Parliament and to get the Constitutional amendment passed in this session and then to get the states to approve it and then to pass the Constitutional Bill, it is a very complicated legislative process. It is very challenging to get it done by April 1, 2016, we want to do it as it is very important.
RBI has cut rates but banks are not following suit…
We have a very competitive financial services industry. Now that the RBI has cut rates by 50 basis points in total, I am sure that one or two or three of the major banks will actually go ahead and cut rates. Once they do that, then all the smaller banks will follow suit if they want to remain competitive. So let’s just be patient.
RBI governor said further cuts will depend on banks transmitting the monetary policy, apart from a range of other pre-conditions …
I am not sure I would agree with that. What has been expressed is a balanced view across multiple factors that drive inflation. Inflation is now, with the monetary policy agreement signed between the RBI and the finance ministry, really the prime objective. All the other factors drive inflation so obviously the RBI has to monitor those. So, I wouldn’t say anything has fundamentally changed. They have just made explicit what they have been implicitly tracking.