Ajay Seth: ‘Higher revenue spending commitment constraining capex ability of some states’

As far as the current year is concerned, for reaching 4.8 per cent (fiscal deficit), we sit down with each ministry, assess their requirements and that exercise goes on in October and November, what their full-year requirement is going to be. There is absolutely no attempt to tell any ministry not to spend anything which has been provided in the Budget. We say that whatever you have got in the Budget that is yours, Parliament has cleared it. Thereafter, we are nobody to tell you not to spend it.

For any ministry asking for additional allocation, for that we would certainly try to have a closer look, whether those expenditures are very much needed or they can be taken in the next fiscal. Having said so, there is one big element which does not come in the public domain, but this Budget brings it out in one of the statements — schemes which are to be implemented with various state domains. There are balances available with them. So there’s no point in releasing more money, unless those balances are taken care of. That also is factored in. There’s enough money in the pipeline, which has already been released. Keeping that in mind, we feel that 4.8 per cent is a reasonable number.

There was no attempt to bring it down from 4.9 per cent to 4.8 per cent. That’s only the spending profile which is happening. But, yes, there is one piece which requires more attention, which is on the capital expenditure side. Capital expenditure side is now roughly about 4 per cent higher than the previous year in the first ten months, about till January. The data is not in the public domain. For the revised estimates calculation (FY25), it has to be about 6-7 per cent. We do expect that in February and March, capex will be much more proportional than the revenue expenditure.

For both states and Centre?

For the states, it is up to them where they spend it. Some of the states, as we are aware, because they have taken so much of revenue expenditure commitment that their ability to do more capex has got constrained. Where we can provide a helping hand for them is by giving them this 50-year loan, etc. Plus nudging them to not have too much revenue expenditure. Keep focusing on capex, that is also important.

Has there been a nudge to those states to be wise on their revenue expenditure?

That always is a part of our conversation.

Is revenue expenditure of some states crossing a threshold which is not ideal?

For some of these states, there’s a worrisome position. States which are relatively high-income states. High income means they are above the national average and getting into a revenue deficit position. I would not like to get into the specific names but these are the states which have the maximum ability to invest into their economy, but they’ve chosen a path that is supporting expenditure today rather than investing further. These are conversations which go on. It is their call. There’s nothing right or wrong. They are the ones who are supposed to make a decision and they have made a decision. And here, I may have a different opinion but there’s a conversation which we have.

Will there also be discussions with states on debt to GDP ratio fiscal anchor because credit rating agencies not only see the Centre’s debt to GDP but also states’ debt to GDP …

First of all, as far as rating agencies are concerned, they look for whether the fiscal has enough headroom available to take care of the next crisis. Crisis can come from the financial world, it can come from the health world, we don’t know from where the crisis can come. Considering that our debt levels are elevated, and as a result, a significant part of our revenue, our tax revenues are getting used up for paying interest on our past debt. Debt levels have to be brought down relative to the GDP. So that is the clear roadmap.

How much the government borrows in a current year is relevant from the perspective of how much is left for the private sector to borrow because the savings pool is limited. That is more of an implication on the growth.Where the rating agencies are concerned, they are looking at the absolute debt level. Now coming to the point of whether there is a conversation with the states, at the moment, our engagement with the states is not more than 3 per cent. For them to reach a more evolved level of fiscal income, that conversation has not yet started. Because there are states which have a debt to GDP ratio as low as 20 per cent, they can afford to borrow more than 3 per cent, if allowed to get into it. Whether they would like to do it or not is a different question. On the other hand, there are some states, which have a debt to GDP ratio as high as 50 percent. They can’t even afford 3 per cent. They should be doing maybe 1 per cent. But that may not be practical for them given their requirements at this point of time.

In the Economic Survey, it was pointed out that the CoP 29 summit at Baku was “out of sync”with the realities of climate change and the need to ramp up climate financing. Now, there’s been some focus on the importance of climate action at the state-level. How do you look at this scenario in terms of securing adequate climate financing moving forward?

Climate mitigation is a public good, and that’s why the entire conversation in various UN forums have been on CBDR (common but differentiated responsibilities) in respective capacities. In Baku, there was some sort of a dilution or the commitment to stay on that was not as high as was expected to be. But look at what we have been doing. We believe in our NDC (nationally determined contributions) that we are supposed to do and we have been largely following that NDC out of our own resources.

Of course, we require more capital, that is how the CBDR are. Because, historically, we have not contributed to the problem. But we have to be part of the solution. To that extent, if there’s a weakening of the CBDR at the global level, it has an implication on that public good. And to the best of our ability, we will keep on financing our commitments towards NDC. But at the same time, we have to now bring in adaptation measures very much into the focus… the Economic Survey also mentioned it.

And we have to bring it, starting with agriculture. Because these extreme weather events are going to be with us and there the better, more resilient seeds are needed. And that’s why the couple of announcements in the budget are to get into those areas.