Terming Union Budget 2015-16 as the “third generation of reforms” after the 1991-92 liberalization wave and NDA 1’s reform steps between 1999-2004, minister of state for finance Jayant Sinha said it was a “sabka budget” that would help create opportunities for 1.25 billion people.
Addressing the criticism that the Budget lacked the “big bang” element, Sinha told CNBC-TV18’s Shereen Bhan that that would depend on an individual’s perspective — and that according to him, the increase in public investment, the recent decision to devolve more taxes to states, as well as the government’s push to create a universal social security system qualified as “big bang”.
“We are putting in Rs 70,000 crore more in roads and railways. Out of it, Rs 40,000 crore will go towards funding railways’ Rs 1 lakh crore capex plan while the remaining will look to kickstart stalled infrastructure projects,” he said. “That is massive bang for the buck.”
Adding that the tweaking the land act was vital for projects to move forward, Sinha said Prime Minister Narendra Modi had made the government’s position clear – that any good suggestion from the opposition was welcome – but added that in the case of continuing opposition to the amendment, the government may consider all options including calling a joint session of Parliament to have it passed.
On fuel subsidies, the MoS said that if oil prices continued to remain supportive and as the rollout of the JAM project (Jan Dhan-Aadhaar-mobile) pans out, the number could move even lower than the Rs 30,000 crore the government has penciled in for the year.
On the issue of bank recapitalization — the government has set aside a meager Rs 7,900 crore of equity infusion for this year when PSU banks are expected to require a few lakh crores over the next few years to meet international capitalization targets – Sinha said that was the wrong place to look for, in terms of how the government plans to revive banks.
“Today, we announced the creation of an autonomous bank bureau that will take hiring decisions on bank chiefs [independently],” he said. In the last budget, the government had said PSU banks were free to sell government stake till as long as it remained above 51 percent in order to raise capital.
Finally, the Budget laying out a higher fiscal deficit target (3.9 percent) for FY16 than was earlier envisaged (3.6 percent) should not impact the central bank’s easing plans, Sinha said.
“It is the quality of the fiscal deficit that matters. You have to look where we are investing the extra 0.3 percent of GDP – roughly Rs 40,000 crore. In boosting infrastructure.”
Below is the transcript of Jayant Sinha’s interview with Shereen Bhan on CNBC-TV18.
Q: The reactions have more or less been positive as far as the Budget is concerned. The direction is right but there is no wow factor, there is no big bang reform, it moves in the same path of incremental reforms which is not what was expected from this government given the political majority and given the political mandate that you enjoy. How would you respond to that because in a sense you have also been trying to temper down expectations as far as big bang reforms are concerned. Yesterday the Chief Economic Advisor first said that there is room and scope for big bang reforms but then he said in a vibrant democracy like India don’t expect big bang reforms. How should we taper our expectations now with regards to this government and its reform agenda because there doesn’t seem to be the political appetite to deliver on the wow factor?
A: What we have accomplished with this Budget is to put in place the third generation of reforms. If 1991 Budget was the first generation of reforms and if the NDA government in 1999, 2000, 2001 were able to unleash the second generation of reforms what we have done with our first full Budget is to put in place the third generation of reforms that will power India into being a leading economic power in the 21st century.
What I will say and in some ways you can call it a big bang because after all big bang lies in the eye of the beholder. So, we have many audiences, we have many stakeholders that come into play when it comes to the Budget and what maybe big bang for somebody may not be for somebody else. So, it is a very subjective thing.
However, we have to again come back to what is the guiding philosophy, what is the framework that we have put in place and how are we going to march forward on that. If you look at that in totality, I would say it is a comprehensive redesign of our economic architecture and the way we are thinking about the future; that is what is important.
Again, if you go through it and look at it comprehensively and you look at all the various different stakeholders starting obviously with the poor because as the Prime Minister said that our government is pro-poor government and this government is dedicated to the poor so we have to focus on them. So, if you look at all the different stakeholders whether it is the poor, whether it is the farmer, whether it is students, whether it is business we have been able to ensure and this is part of our tagline for the Budget which is ‘sabka Budget, sabka labh’; that is really what we have been able to accomplish. We have been able to power a set of reforms that will enable us to become a world class 21st century economy.
As you know I have spent a lot of time working in America, I have spent a lot of time working in Europe and I can say given what we have put in place that when I speak to investors, when I speak to business people as I do all the time I can look them directly in the eye and say when you look at the world leading economy, what we have put in place today enables us to say whether it is a UK, US or whatever our policies, our tax regime, our governance is going to be second to none.
Q: Let me pick up on individual issues now and let me talk about infrastructure because that clearly is the big priority as far as this Budget is concerned. You have decided to let go of the fiscal deficit target of 3.6 percent in order to boost public investment to kick-start the investment cycles, Rs 70,000 crore additionally allocated to infrastructure be it railways, roads, you have got a target of 1 lakh kilometres in road length as well. The question now is implementation and the question is how soon are they going to see a revival as far as the investment cycle is concerned, when do you started to deploy this money, give us clarity on when this infrastructure development fund for instance will be set out?
A: The answer is very soon. With respect to Rs 70,000 crore that is gross budgetary support, that money is available now. We will immediately start deploying it. You saw what an amazing and excellent Budget the Honourable Railway Minister presented, where he said he is going to deploy Rs 1 lakh crore of which is Rs 40,000 crore is going to come from this Rs 70,000 crore immediately to start improve — the railways are a place where you get massive bang for the buck immediately when you start to do public investment because what you do is you increase the capacity of tracks, you run freight line separately from the passenger lines that immediately starts to improve the speed by which you are running your freight traffic, the speed at which you are running passenger traffic, you start improving the stations, that is something which is going to yield results very quickly.
That is Rs 40,000 crore out of Rs 70,000 crore then let us take roads for example, as far as roads are concerned, we have a number of stalled projects where the contractors have had trouble — in my own constituency, Hazaribagh, we have the stretch from Hazaribagh to Barhi where the contractor went bankrupt and hasn’t been able to do it. You take that stretch where everything is done, the land acquisition and everything else and you give it on an engineering, procurement and construction (EPC) basis where you are writing the cheques to a contractor that work can begin tomorrow, there is enough on the shelf right now. As they say in America, shovel ready projects, projects that are ready to go. That Rs 70,000 crore whether it is in roads or railways, irrigation and ports where we can start to deploy that immediately and that will turn the investment cycle for public and private investment very quickly and the multiplier effect of all of this is quite immense because what you are going to get then is once you start to get that kind of investment going, like I said whether it is in railways, the trans-harbour link in Mumbai, cement gets bought, construction begins to happen, steel is purchased.
Q: The construction industry is not happy with the service tax hike because they believe that that is going to impact them but that is a separate matter altogether and that is part of your plan towards goods and services tax (GST), so you cannot quibble with that. The criticism or the scepticism on the infrastructure story comes from the implementation issues because the government has a poor implementation record and I am not just talking about this government.
A: It is a very cheap shot anybody can take. When you present a plan, the cheaper shot you can take on any plan and I have spent many years developing strategies on plans — what are you going to do about implementation — it is our plan, when we get into implementation then you criticise the implementation but this is a Budget document, we are not going to pull out our pickaxes and start doing construction work in parliament right there on the spot.
Q: The finance minister also spent time talking about revamping the public private partnership (PPP) agreements, the railway minister spoke about revamping PPP agreements, the previous Budget talked about PPP India, we haven’t seen any forward movement on that and hence the question that while you maybe talking about all this kind of extra allocation to infrastructure but unless and until you get your regulatory process sorted out unless and until you get this PPP process sorted out, you are not going to be able to achieve that?
A: I don’t think that is right. I get to see the data every month of all the investments that are being tracked across the government system and what we are seeing there in fact is a large number of the stalled projects and I think the number is now almost Rs 1.8-1.9 lakh crore were the projects that were classified as stalled have been flipped over and are now projects that have gotten the green light and have gotten going.
There are still a number of stalled projects but projects have gotten going and you can obviously see what has happened with the coal auctions, the mining auctions are to come, you can see what is happening with the telecom auctions and so on, so the investment wheels are beginning to turn for sure. A lot of the stalled projects are starting to move as well and in fact he land acquisition act is a very important aspect of it. I have seen data which shows that something like 35-40 percent of the stalled projects are stalled because of land acquisition.
Q: Will you call a joint session of parliament to push through things like the land ordinance because at this point in time it doesn’t seem like you are being able to convince the opposition to come on board?
A: As I said the honourable Prime Minister gave a very compelling speech in parliament yesterday where he clearly explained our position when it comes to land acquisition act and he said that if anyone has a good suggestion that is going to help in drafting a better bill for land acquisition absolutely we want to do that.
So, there is a process of consultation, we want to bring all stakeholders onboard, we want to keep the door absolutely wide open to anybody who has a good suggestion for the land acquisition act and improve it because we really want to take this land acquisition act forward. If we can do it in that fashion where we do it through consultation, do it in collaboration in the national interest as opposed to be obstructionist and if that is way we get it done brilliant, that’s what we would love to do. On the other hand if people are only going to be obstructionist, if they are going to be against the national interest, if they are going to politicise everything just to score some narrow political gains of their own then we will have no other recourse except to look at other measures such as a joint session.
Q: As far as the share of subsidies is concerned that has fallen to about 1.7 percent in FY16 from 2.1 percent in the previous fiscal. Is there room to do better, is this number likely to be improved upon because I don’t know if this assumes a full fledged DBT rollout for things like Kerosene for instance because even LPG so far has pretty much been on a pilot basis rolled out across 54 districts and so on and so forth. Can these numbers look better on the subsidy front?
A: They can absolutely look better on the subsidy front. The change that you are seeing between 2.1 percent and 1.7 percent is largely because fuel subsidies which have obviously come down as fuel prices have dropped. So, that has really helped us, it is a great cushion for us to have had in the last year which we got the benefit of for about 4 or 5 months and then of course in the full year going forward provided oil prices don’t go up again. However that is the cushion that we have had. As far as other subsidies are concerned we made it very clear and because we are after all pro-people, pro-poor government that we are not going to touch subsidies in terms of the level of subsidies.
We want to make sure that if you are poor in India, you are not going to be deprived, all your basic needs are going to be met, your financial needs are going to be met, your housing needs are going to be met, your housing needs are going to be met, we just don’t see that as a political necessity. For all of us it is a moral responsibility. We are not going to touch the level of subsidies. What we want to ensure and I think this is where the cost savings are as has been laid out in a very comprehensive and clear manner – the JAM trinity. There of course we have to commend the work that my very good friend Nandan did when he was running UID which is he had put in place a absolutely world leading architecture than enables us of course because we have the political will and the administrative ability to get it done to lay out the full platform and to make it happen through DBT.
Q: What more can we see being linked to direct benefit transfer (DBT) how soon and how quickly?
A: Because of the JAM trinity and as I said Nandan’s very insightful and very forward looking architecture that he was able to put in place and then all the different things that we built in it. You see unique identity number (UID) would not have worked if we have had not done Jan Dhan Yojana. Very quickly we realised that what the UPA did as far as Aadhar was concerned was stillborn. It only got so far it is not going further.
What was really required was to put in that missing link which was Jan Dhan so just see the wisdom; the honorable Prime Minister said in August at the Red Fort and you got Rs 12.6 crore accounts in January in four months. I call that implementation; I call that execution focus so we were able to put that missing link in place. So not only do we have Aadhar which we are pushing hard now we got universal bank accounts for everyone, mobile is growing very quickly. Now we have in place the architecture, the platform that will enable us to be able to solve the problems of India needy’s.
Q: What more how quickly liked to the DBT?
A: As much as we can, as quickly as we can and already in this Budget we have said that we are going to do that with liquid petroleum gas (LPG) and we are doing it. We said we are going to do that in scholarships, we said we are going to that with respect to pensions Swavalamban scheme which we are really upgrading. We have said that Atal Pension scheme that we are putting in place. We are going to do that with accident insurance. We are going to do that with life insurance.
So we are going to keep on adding all these benefits. What we are doing in social security is a Big Bang, as I said big bang is in the eye of the beholder but if people do not realise that we are moving towards universal social security on this platform and therefore for the poor of India this is a Big bang I feel very sorry for the person. It is much more than pension, it is too create a universal social security system so that has it is said in the Budget speech therefore no Indian citizen should be deprived or feel deprived.
Q: Have you budgeted Rs 7,940 crore for PSU bank recapitalisation?
A: It is the sensible way to do it and we have spent a lot of time thinking about this. The reality is that to look at what we are going to do as far as the public sector bank is concerned you are looking in the wrong place. The right place to look at is in the Budget speech where we said we are going to put together an Autonomous Bank Bureau. The bank bureau is going to do three very important things.
It is going to do all the appointments in a professional way and link to that is the announcement we just had a couple of days ago where we said we are throwing it open to the public sector and the private sector so that we can give three year term to the chairman’s and the managing directors that whole process is going to be run by the Bank bureau as an independent autonomous body that is going to be running it. In addition to that the bank bureau is going to work on strategies it is going to work on capital raising and eventually that bank bureau is a precursor towards a bank investment company. These are very fundamental profound changes.
Q: They are fundamental, they are profound and it is time that they have come because for the nine months or for in fact the past year several public sector banks have been held in this and we have now just seen you put this criteria in place.
A: I will add one more thing to it. We have also said in the Budget speech that we are going to explore all kinds of innovative financial instruments like differential voting rights and so on.
Q: So you are looking at DVRs as far as banks are concerned?
A: Of course. Any promoter will.
Q: Because this is a suggestion that the Reserve Bank has made to you I am given to understand.
A: We have of course. Look, we have been all working on this for a very long time. We as a promoter and we as a are the custodian of the peoples shares in these banks. Of course as the custodian and as the steward of that obviously we have to look at all kinds of innovative instruments. So, to think that it is only the government that is going to step up and cheque for the banks is a very narrow view of it.
Q: So, by when can we see this bank holding company come into effect?
A: No, there are many steps that have to be taken to be able to get to a bank holding company. As far as the bank bureau is concreted that we are moving forward very quickly. Ultimately my appeal would be to those who are watching it, if you are interested do send us your CVs, your resumes, let us know if you are interested, if you have the right qualifications because we want really good and capable people on the bank bureau board.
Q: Just a question related to banking and you have accepted the monetary framework the Finance Minister said so in his speech. Can you give us a sense of the composition of the monetary policy committee, who will appoint the members, when can we see this?
A: This is another profound and important thing that we have done. Earlier I was saying that we are really trying to build a 21st century, modern, world leading economy. The world leading economies have in place a monetary policy agreement between the finance ministry and their central banks and which is what we are putting in place as well. As far as the monetary policy committee is concerned that agreement has been signed but I am not at liberty to disclose exactly all of the details which we should be announcing shortly.
Q: A very aggressive disinvestment target and that again raises the scepticism because of what we have seen happen as far as disinvestment is concerned historically. Receipts have been abysmally short of what the targets were at Rs 70,000 crore. You are also now factoring in for the first time strategic disinvestment. By when do we start to see strategic disinvestment and what can we understand strategic disinvestments to mean for instance?
A: That is an excellent question and I will concede that that is an ambitious target; the Rs 70,000 crore that we are expecting from disinvestment but we are looking at it from a very flexible and open manner and we will put in place a comprehensive approach. The government has many assets, there are listed companies, unlisted companies. There are landholdings, all kinds of different things that can be monetised. You can rest assured that we will take all of those into account and into consideration as we formulate our plans and obviously because we will be selling and if you are a seller you generally tend to keep your cards close to your chest.
Q: I can imagine that you want to keep your cards close to your chest but does this include things like land monetisation as well?
A: We will have to wait and see.
Q: The Budget is out there now and people are going to pour over the fine print. As far as two of the key ambitious tax reforms are concerned, on one you have decided to bury it which is the direct taxes code, on the other which is the GST, you have committed yourself now to the April 1 2016 timeline. Service taxes have moved up in accordance with the eventual move to the GST. What more can we see now as we approach the GST rollout. What is going to be the process, what is going to be the timeline of the various rollouts?
A: So let me comeback again to the big bang question, because as I said big bang is ultimately in the eye of the beholder. What we have done between cooperative federalism which is the 42 percent devolution to the states and the indirect tax reforms that we are doing with GST is we have reset the fiscal architecture of the Indian government. Now if somebody doesn’t see that as a big bang I feel sorry for that because we have completely reset the way things work.
Now GST is a very important aspect of how the taxing powers of the union and the states are going to change. We have already been working on it since 2007 obviously and where we are going to go with that is a very clear road map which we have already laid out. We first need somebody to come back and be the chairman of the empowered committee because the previous chairman of course is no more the Finance Minister of Kashmir. So we need a chairman of the Empowered Committee. Once we have a chairperson of the Empowered Committee what we are going to do is we are going to finalise the constitutional amendment that has to be passed. We are hopeful that we will try and pass it in this session by the end of April and then of course the states have to approve it.
Q: Because the feedback that we are getting from tax experts is that if the constitutional amendments were not to pass in this session or perhaps even gets pushed to the next session it will become very hard to rollout GST from April 1. So you may need to push it a little further, maybe not change the year but maybe push it beyond April. Do you believe that if the constitutional bill is not passed in this session you will be able to meet that timeline?
A: No, we will try and pass it and of course we are determined to pass it. GST is one issue that hopefully has bipartisan support across the aisle and so we can all get together and get it over the line. So we are determined to get it done in the Budget session. That is kind of where we are. We just want to get it done. As long as our colleagues in the opposition are thinking in the national interest which I hope they do because ultimately we have the weight of 1.25 billion people on our shoulders in terms of being able to give them opportunity and a better life, we will certainly get it done.
Q: Let me end with the big headline that hit our screens which was corporate tax to be cut to 25 percent and then of course the expectations came down a little bit because it was over a period of four years. The exemptions are only going to be removed now from next year onwards. We do not know which you will start to move out next year onwards, that clarity has not been given but for now including the surcharges corporate tax rate is in excess of 34 percent. So, in the short term till you actually are able to get to that 25 percent, do you believe that the Make in India, Manufacture in India dream is not really going to take off?
A: The problem with our corporate tax is the fact that it is not that our tax rate at 34 percent is not high, of course it is high. The actual rate is that if you really look at the effective tax rate taking into account all the exemptions it is actually 23 percent. So, we have a situation which is contentious, it is messy, it is full of discretion, full of litigation and so on where people are trying to work it down from 34 to 23 percent; they are looking for this exemption and that exemption and obviously this is a consultative process. We have said all along that our tax code should be simple, it should be predictable, it should be fair.
Q: But no Direct Taxes Code (DTC)?
A: No DTC because all the really good aspects of DTC have already been incorporated in the tax code and the tax code right now has a settled aspect about it. A lot of the contentious issues have been worked through in terms of the case law and rulings and notifications. So, if it ain’t broke don’t fix it? So, we keep it as it is and of then course through a consultative process we work through what should be the road map for the exemptions as we bring this down to Association of Southeast Asian Nations (ASEAN) like levels of 25 percent.
Q: Fiscal deficit at 3.9 percent which is what you are projecting now. How much room do you give the Reserve Bank because they were looking at you for fiscal consolidation, do you believe that the Reserve Bank will feel comfortable to aggressively ease monetary policy?
A: We have very high quality plan in place as far as the fiscal is concerned because if you really read closely what market analysts, what even the Reserve Bank of India and others are saying is that it is not a number, we are not fixated on a number, it is the quality, it is the long term commitment to get down to three percent and it is really a question of where is it that you have taken that 0.3 percent of GDP by the way which is about Rs 40,000 crore, where have you taken that Rs 40,000 crore and spent it. We have spent it on public investment which is pro-growth and a very productive use of that money.
Q: How much would you like to see rates go down by?
A: To the right level, whatever that maybe.