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‘Aim has been to give as much stimulus as possible without compromising sustainability’: TV Somanathan

In an interview to The Indian Express, Somanathan — who earlier served in the Prime Minister’s Office for over two years and then was posted as Principal Secretary with the Tamil Nadu government — said the government didn’t want to do anything “imprudent”.

Written by Aanchal Magazine | Published: February 10, 2020 12:30:51 am
TV Somanathan, Expenditure secretary, Union Budget 2020, Budget 2020, Budget, Union Budget, Business news, Indian Express TV Somanathan

Having joined the Finance Ministry just seven weeks before the Budget, Expenditure Secretary TV Somanathan had a crucial balancing act of managing expenditure with slowing revenues amid the overall economic slowdown. The government’s aim in the Budget was then to push for higher expenditure, without creation of long-term problems such as servicing of debt, Somanathan said. In an interview to The Indian Express, Somanathan — who earlier served in the Prime Minister’s Office for over two years and then was posted as Principal Secretary with the Tamil Nadu government — said the government didn’t want to do anything “imprudent”. “Our aim has been to provide as much stimulus as possible without compromising long-term sustainability. We don’t want to get into a situation where we do so much that we run into a crisis after two years on servicing our debt. We didn’t want to do anything that is imprudent,” he said. Edited excerpts:

You have made certain disclosures in the Budget. Do you think that over the coming year, the government make many things above the line?

I think transparency is more important than the accounting policy, which even in the private sector varies: you can have US GAAP or you can have IFRS so, as long as you can understand each set of accounts, it is not a problem. The accounting is also complicated by the following: you take something like food subsidy, ideally it should be in the Budget. You see some other extra budgetary resources (EBRs) which we provide, it’s actually for a productive investment, which might generate some returns. It’s a little more questionable whether they should be in the Budget. Some people take a very extreme view which I don’t think is correct.

Suppose SBI takes a deposit from you, SBI is government controlled, is that government borrowing? You wouldn’t say that. Say, ONGC takes a market borrowing from abroad or in India, is it? No. Why? Because it’s a business, it stands on its own footing, it has assets, it has revenue streams, it will manage its services, it’s not a contingent liability on the Government of India. So, actually, it’s not black and white. FCI has no revenue stream. We will have to pay it back. NHAI is in between, some roads are viable and some are not. For the long term situation, what I am saying is, obviously many of these liabilities are liabilities of the government in some form. So I wouldn’t say put everything into the Budget. No. I would say that transparency is important so that everyone can see what the implications are. But how much needs to go into the Budget is something that requires careful study and calibration. Also, the implications of the EBRs are different because they do not place a load on the bond market.

Planning for the Budget, how much of it weighed on your mind that we are in probably the worst slowdown phase and private investments have not picked up?

Our aim has been to provide as much stimulus as possible without compromising long-term sustainability. We don’t want to get into a situation where we do so much that we run into a crisis after two years on servicing our debt. We didn’t want to do anything that is imprudent. So it’s a line, it’s a judgment. And there was a strategy around this, which even the FM has also said: push expenditure, but up to the point where it doesn’t create or store up long-term problems. So that is what we have striven to achieve. I think we have got it approximately right. So, it is not 3.3 per cent (fiscal deficit as percentage of GDP), we will go to 3.8 per cent, that is the plus 0.5 per cent. We will do a little more by shifting some liabilities to off-budget borrowings, but not more than that. And so, in a way, we’ve done everything we can, which doesn’t store up a long-term problem. That has been the effect and that is exactly what we were trying to do.

The total Budget size, there is a 12.7 per cent increase, given the nominal growth rate of 10 per cent and this huge reliance on Rs 2,10,000 crore on one kind of receipts (disinvestment). Is it manageable? What gives you the confidence?

Fair question, but for me from the expenditure side, we are looking at an expenditure Budget of Rs 30.42 lakh crore, in which you have about Rs 23-24 lakh crore as tax revenue. Then you have a bit of non-tax revenue, and then you have disinvestment. The tax revenue numbers, I think they are pretty sound. The 10 per cent nominal growth is very likely. So if you get to 10 per cent with no structural changes in taxes, I think 1.2 buoyancy on taxes is very reasonable. So 10 per cent nominal, 12 per cent tax growth is what has been estimated.

Others, you may have some risks on the downside, but I think there is some upside on the tax. So, overall, I think the risks on the expenditure side are moderate.

The outstandings of the government of India with various CPSEs: How are you placed right now in terms of shortfall, or in terms of payments?

There is no increase in arrears or unpaid bills of central government to CPSEs; in fact, if anything, it has come down. As regards payments by CPSEs to their suppliers, that the government has really focused on and brought down substantially since September, with several rounds of reviews, including in the Expenditure Department, in the Cabinet Secretariat, and there has been a substantial reduction. Very few of them have dues above 45 days, the time expected in the MSME Act. The last time we reviewed, there were only 12 CPSEs, who had some balances above 45 days and even those have now been brought down. So, we made a big push.

Regarding the escape clause of the FRBM Act that has been used by the Centre for its fiscal deficit target, there have been similar demands from states. What about them?

Their Acts don’t have escape clauses, states don’t have flexibility in their FRBM Acts and that is the way the architecture is right now. States have less flexibility in terms of resource management. If it builds up into their debt, they have fewer levers to meet that future increase, the Centre has more flexibility to address future debt.

The Budget has lower share for states …

As regards the states percentage share in revenues being lower, one is an accounting reason — partly in the RE (Revised Estimates) and more so in next year’s BE (Budget Estimates), J&K is not in the states column, it’s in the Centre’s column. Second is that there is an entry for the GST compensation cess, which unlike everything else, is 100 per cent to the states. That item has not grown. I’m talking about the collection of GST compensation cess. So when the biggest proportionate source of the states doesn’t grow and the ones that are growing are things where the Centre has a much bigger share, in aggregate it changes the ratio.

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