Ajay Bhushan Pandey talks about challenges and opportunities of the Feb 1 Budget, says 6.7% tax collection gap will be “narrower” by year-end, asserts investments are coming and discussions are on at various levels, and explains the government’s plan for a bad bank. The session was moderated by Special Correspondent Aanchal Magazine
AANCHAL MAGAZINE: What were some of the key areas that you wanted to focus on in this Budget?
We are all aware that the last one year has been difficult. We tried to intervene through various packages, and each one of them can be called a mini-budget. Around November-December, when we started preparing for the (February 1) Budget, the thought within the Finance Ministry and the PMO was that this is both a challenge and an opportunity. Also, we thought about measures that would make us capable of not just handling the present challenge but would also put India on the reform trajectory. It was our attempt to make a quantum leap into the new decade. Intense deliberations took place in December-January within the Finance Ministry, with other ministries, as well as stakeholders outside the government. We got a lot of inputs and ideas, and then you saw the result…
In this Budget, one of the things that we have attempted is transparency… We were quite forthright in admitting that our fiscal deficit will be in the range of 9.5% (of the GDP), and then next year it will be 6.8% (of the GDP), and so on. All our expenditure and revenue statements also were very realistically assessed.
As far as the application of money is concerned, we thought about where we can put the money to ensure a multiplier effect. So, there is a quantum jump in capital investment, infrastructure allocation. Then, considering the current crisis, you can see allocation to the health sector, vaccines etc.
It is normally believed that at the time of the Budget, rates are changed, either in personal income-tax, corporate income-tax or in indirect tax. I think this Budget is a far bigger statement than just a few changes in the tax structure. Another statement that we made is that we need stability in the tax rate.
AANCHAL MAGAZINE: What is your view on the overall recovery process of the economy in the coming year?
In December, our gross tax collection was down by 12-13%. By the end of January, the gross tax collection, compared to the actual collection in January 2020, came down by 6.7%. Now, with the situation improving, by the end of the year this gap of 6.7% will be narrowed. This year, we have also been very, very prompt in giving refunds to the taxpayers. The total income-tax refund that has been given is almost Rs 1.91 lakh crore. Our net revenue collection by the end of January was short by 9.5% of the actual revenue… In a pandemic situation, we need to compare how much was collected last year to how much we are going to collect this year. Our estimate is that the gap will further reduce by the end of March…
Now, for next year, what we have estimated for both indirect and direct tax — which was also predicted in the Economic Survey, by the RBI — is that there could be a nominal growth rate of 14.5%. On 14.5%, we applied a tax buoyancy of 1.16, and that is why the revenue growth in the next year comes to 16.7%. Now, is that an underestimate? My own view is that it is neither an underestimate nor an overestimate, it is a realistic estimate based on sound logic.
ANIL SASI: The Finance Minister was quite emphatic in saying that the government has spent through the year to boost growth. In the government expenditure figure of 28% for the current fiscal — if we were to discount the Food Corporation of India borrowings — the increase comes to about 17%, roughly. And, this 17%, if compared to the previous fiscal, 2019-20, which was about 16%, shows that there isn’t a big incremental push. Also, in the first three quarters, the spending has incrementally been about 8%. Which means that in the last quarter, which is the current quarter, there will have to be a big spending push. How will that happen, even to achieve the 17%?
If you see, in the first two quarters, our capacity (was affected) because of the lockdown etc… Even in the third quarter, during Diwali, there was a surge in cases, and people went back into their homes as the restrictions were imposed. Fortunately, in the fourth quarter, things are improving. Covid-19 numbers are coming down, people are going out. This will have an impact on government expenditure also. Traditionally also, in the last quarter the expenditure is higher… Because of the increased activity, we are also hopeful that we will achieve the figure that we have given both on the revenue and expenditure side; it is not just to look good.
PRANAV MUKUL: Privatisation was one of the key themes of the Budget. There was a specific focus on strategic disinvestment, but the only sort of strategic change we have seen in the recent past is one Public Sector Undertaking (PSU) taking over another. Right now, what is it that indicates to the government that the private sector is ready to take over large PSUs?
If you see the major disinvestment processes that are currently going on, particularly Air India and Bharat Petroleum Corporation Limited… these are the indications that we have got. A large number of private players have either participated or they are in the process of participating when the date of the bid comes… This Budget is a statement. The Finance Minister of the country has said that we will privatise two banks and one insurance company, we will monetise the assets, and we will invite the private sector… The Prime Minister’s statement in the Lok Sabha… he said that the role of the private sector in economic development needs to be appreciated. The principle of minimum government, maximum governance… you can see this reflection in the Budget speech.
The whole idea is that in the third decade of the 21st century, should the government be in the business of business? The government should act as a catalyst, as an enabler, and a source to facilitate economic development. This is something that we have said too. Privatisation and disinvestment will happen, but these statements are indicative of a larger strategy which shows the direction in which the government will be moving forward… In a country of 138 crore people, can these things be done only by the government?… Take for instance vaccine development, or PPE kits, or ventilators…. The role of the private sector has to be encouraged and the government has to be a facilitator, that is the broad principle which will be pursued, not one PSU buying another PSU. It could have happened in a few cases, but that’s not the direction of what has been laid down in this Budget.
HARISH DAMODARAN: What would be the total mobilisation of the agriculture infrastructure and development cess? It is applicable on petrol, diesel, palm oil, soya oil, all big-ticket items. For diesel, it is Rs 4, and our consumption is around 10 crore kilolitres per year. That itself will be Rs 40,000 crore. So, the total collection will be in excess of Rs 1 lakh crore. Where is the scope for spending Rs 1 lakh crore on agriculture infrastructure? States are not going to get any of this money either. How will these funds be used?
Our estimate is that we will get around Rs 30-35,000 crore. While planning the Budget, there are competing priorities from various sectors, and many times there are budgetary constraints. So, we thought that why not have this special cess which will allow us to plan expenditure, particularly in the areas of agriculture infrastructure and development. Our other objective was not to burden the taxpayer. So, wherever possible, we adjusted the Customs duty… And about petrol, diesel, that you have mentioned, a large part of that comes from reduction in additional excise duty… The additional excise duty was a kind of general purpose cess which was coming only to the Centre, which could be spent on any item. So, we reduced that also and replaced that reduction with the agriculture development cess partly. We have made the estimate, it is about Rs 30-35,000 crore… Definitely not Rs 1 lakh crore… Again, a significant amount of this money will go to state governments through various schemes.
PRASANTA SAHU: Tax disputes have been on the rise in the country. What does the government propose to do about this?
We have been grappling with tax disputes for decades. We tried to look into the reasons for it. One is legacy cases. Now, last year, before the pandemic, for indirect tax, we brought in this Sabka Vishwas (Legacy Dispute Resolution) scheme. It was particularly for disputes linked to excise duty because excise was subsumed in the GST. It got a very good response and disputes of over Rs 80,000 crore got settled under that scheme.
Now, for income-tax, we brought in the Vivad se Vishwas scheme last year. It was passed by Parliament in the third week of March and, soon after, the pandemic struck. We faced some setbacks in the initial months. Now, by the end of January (2021), the results are very, very encouraging. More than 1.25 lakh cases concerning Rs 97,000 crore have been settled under the Vivad se Vishwas scheme.
… The faceless random tax assessment scheme was launched by the Prime Minister on August 13 last year. In the last five months, around 50,000 cases have been decided under the scheme… Of these cases (additional tax demands) were large in only 4,000 or 8% of the cases. If we compare that to the earlier non-faceless, manual system, large additions were made in almost 60% of the cases… Ultimately what is going to happen? Those cases will end up in appeal, there will be disputes and litigation. Faceless assessment system actually strikes at the root of the problem of tax disputes.
SUNNY VERMA: The government sharply reduced the corporate tax rate in September 2019. The objective was to kickstart investment and capital expenditure cycles. Have you carried out an assessment to find out if the objectives were achieved?
We brought in the tax rate in September 2019. The objective was to kickstart the investment cycle… and be competitive in the world… We have to see what is the optimal tax rate in a developing country. And, the tax rate should also meet our revenue requirement… We should be competitive so that people make investments here. In this digital world, investments will flow into places which are more tax-friendly and have a congenial environment.
In the first year itself (of the tax reduction) the coronavirus pandemic hit. This posed a serious challenge to people’s investment plans… The current trends that we are seeing (in terms of) investment, domestic or foreign, all point out that there are plans and people are engaged in discussions with us at various levels… So, investments are taking place.
AVISHEK G DASTIDAR: The Finance Ministry extended a loan of around Rs 80,000 crore this fiscal to the Railways. This has helped the Railways meet, among other things, its pension liability. Is the Ministry open to sharing the Railways’ pension burden in the future?
When we prepare the Budget, every ministry submits a statement to the Finance Ministry regarding how much revenue it is going to get and how much will be its expenditure commitment under various heads, including pensions. Now, the Railways is part of the Union Budget and therefore these things will have to be decided holistically. Everything (the funds) comes from the Consolidated Fund of India and then the money is given. All departments are part of the government and when we conduct a pre-Budget exercise, we take full stock of how much revenue a department can generate, and how much expenditure it is going to incur — the gap or surplus, and how the gap will be met.
ANANT GOENKA: How will cryptocurrencies affect revenue calculations of the government?
Cryptocurrency is being debated within the government and also on various international fora. Currency is the sovereign function of every country… If some private entity starts developing and circulating its own money, will that be permissible by any country? A basic feature of a sovereign nation is that it should have its currency.
There is a lot of misconception. Cryptocurrency is sometimes confused with digital currency. The RBI can come out with digital currency. Today, when one is making a payment through UPI or NEFT, is it not digital currency? If one has money in the bank account, without being able to see the currency, one can make transactions. The money which is there in your bank account is actually digital currency. If you see the growth of UPI in last two years, it is mind-boggling. Almost Rs 4 lakh crore has been transacted through UPI, and 250 crore transactions have taken place. So, is this not digital currency?
Currency is in the Union list. Every sovereign country is allowed to have its currency. If any other currency is being introduced in some form, which does not conform to the constitutional principle, then it is a violation of the Constitution. Every policy, whether the government will allow (cryptocurrency) or not, will have to be dictated by this principle…
ANANT GOENKA: The Prime Minister had said that the Budget will happen in several parts, that there will be many mini-budgets. Can you elaborate?
In the Budget, we have given a statement about expenditure and revenue collection. Now we have to implement it. What the Prime Minister referred to was that before the Budget we had several mini-budgets. Every time when we are taking certain reformative steps, particularly involving the expenditure of money in desired sectors, the impact is going to be much more than a small implementation step. So it acquires this character of a mini-budget. Before the Budget (on February 1), we had several budgets. And the (February 1) Budget is truly reformative.
GEORGE MATHEW: The Finance Minister mentioned forming a bad bank to tackle bad loans. How is the government planning to take it forward?
Today, every bank, in the public or private sector, is in the business of advancing loans. It is in the nature of the business that every loan that a bank advances cannot always be successful. So, some loans are going to turn bad. When a certain loan turns bad, how do we dispose of the asset? How do we derive the remnant value from that particular asset, which was created out of the loan which has become bad?
The concept of bad bank was being debated for the last several years. Now, in this Budget, one proposal has been mooted to Parliament. We will provide certain details on how the bad bank will function and what will be the shareholding pattern. At this point in time, some details have been worked out and some are being worked out. At an appropriate time and through an appropriate Bill, if required, it will be placed before Parliament… The intent is to create certain agencies that will help dispose of the assets. If we don’t dispose of these assets or take care of them, then, over a period, their value will decline. That is not good either for the banks, depositors or the economy.
ISHAN BAKSHI: The Finance Commission has laid down the fiscal consolidation roadmap for the government for the next five years. Is this roadmap constraining the Centre from spending more next year?
In a pandemic year, we have projected expenditure of around Rs 34 lakh crore. The next year, we have projected Rs 34,86,000 crore. This is the estimate we have made. Sometimes people say that we have estimated far more expenditure than we have the capacity to spend. Again, some have the view that we could have spent more. There can be a debate on this. But we have taken a call that next year we will be again required to spend.
This year, we will spend a huge amount. Therefore, even though the budgetary estimate of the current year is around Rs 30 lakh crore, it has gone up to more than Rs 34 lakh crore. This is because we had to come out with several Atmanirbhar packages due to the coronavirus crisis. We also had to spend money on various welfare programmes and other activities… Revenue has shown a growth of 16.7% and that is why the fiscal deficit has become 6.8%.
The Finance Commission has in its report laid down a certain roadmap. Of course, it is a very important input. When the government plans a Budget, we have to take various professional opinions from various quarters. Based on its requirement, the government takes a call and places it before Parliament, which is finally approved.
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