Jayant Sinha, Minister of State for Finance, in an exclusive interview to CNBC-TV18’s Shereen Bhan spoke about the passage of goods and services tax (GST),GST rate, fiscal management, cut in exemptions, 7th Pay Panel recommendations, growth targets, divestments and other issues that impact the economy.
He said the government is working with the opposition to try and arrive at a consensus on GST and is hopeful of getting the bill passed in the Winter Session of the parliament. “We will try our best to roll out GST from April, 2016,” he added.
He said, “The challenge is not in implementing GST but in legislative action.”
The government would try to ensure that the GST rate keeps India competitive. The government will have to strike a balance between cutting tax soaps and cutting corporate tax rate, stating that industry is free t come and express their concerns to the government.
Below is the transcript of Jayant Sinha’s interview with Shereen Bhan on CNBC-TV18.
Q: Let me start by asking you about the single most awaited decision that everyone in the market is keenly looking out for and that is to do with the goods and services tax (GST). We have got the winter session of parliament starting on the 26th. All indications seem to suggest that perhaps in comparison to the previous session, there is more hope that the GST bill would get through this time around. The congress party had demanded an 18 percent rate. I know you will not comment on whether it is going to be an 18 percent or not, but indications seem to suggest that the government is batting for a low reasonable GST rate. Do you feel confident about the GST.
A: Of course you are right. GST is front and centre in our economic agenda right now. Our sense is that we should have a quite an opportunity this time to hopefully get GST passed. Since the monsoon session, when we tried our best to get the GST passed, we have had a lot more time to prepare, work with our colleagues from the opposition, understand what their concerns are, continue to build consensus with states, continue to work with the GST council. So, we have been working on all these different dimensions to really put together what we think will be an acceptable package for our colleagues and opposition.
Q: You think the opposition specifically, the congress party really, is on board now with the possibility as far as the one percent manufacturing tax is concerned and also an alignment on the GST rate wit what the congress is hoping for.
A: We want to forge a consensus on this. This is a revolution on indirect taxes in India. It will be just an extraordinary boost to the economy and make life much simpler for our business people and for the people in trade and distribution as well. So, it really does require a durable national consensus to get it implemented and so that is what we have been working towards. Obviously, there have been some contentious issues, the one percent tax has been a contentious issue, how disputes get resolved is a contentious issue and obviously the rate structure and the rates themselves have been matters that people have been talking about. So, we hope that we have now done all the homework that is necessary to build that durable national consensus and convince everyone.
Q: Including the state of Tamil Nadu?
A: To convince everyone to the extent possible that this is in the best interest of all of India.
Q: Including the state of Tamil Nadu?
A: Consultations are on with all stakeholders.
Q: As far as the GST is concerned, at this point in time would it be fair to assume that the government is keen on a low rate of tax which could perhaps be 18 percent or lower is what we are given to understand.
A: Honourable Finance Minister has spoken about this many times. All of us want the economy to do well. We want tax rates that are reasonable, that are competitive, that are in line with global benchmarks, so we trying to ensure that we have a rate that keeps us competitive, we have a rate that will work for all of our business people and our consumers, so let us see what eventually transpires.
Q: April 1, 2016, still feasible do you believe if it goes through in the winter session?
A: I am an eternal optimist. I will continue to hope that that will be possible. So, let us see as and when the legislation gets passed here as far as the constitutional amendment is concerned. Then it has to go to 50 percent of the states and then we have to pass the GST bill itself, and that also has to be passed by the state. So, the legislative calendar is very challenging. At this stage, we will try our best, but it is a challenging legislative calendar. As far as the implementation work is concerned, the GST network, getting the field formations ready, doing the work in terms of actually getting the GST council ready to take this on as a responsibility. All of that work has been underway, all the preparations are in place. So, on the implementation side, we are quite confident, the legislative side of course is the one where the calendar becomes challenging.
Q: And you hope that you will at least make the first move as far as the winter session is concerned, but since we are talking about taxes, let me talk to you about what the Central Board Of Direct Taxation (CBDT) has put out in terms of the roadmap of phasing out exemptions. While the roadmap of phasing out exemptions has been clarified by the CBDT as much as possible at this point in time, because it is still a draft, it has not clarified on how much we will finally start to see the corporate tax rate reduce. The finance minister has spoken about the aim to bring down corporate taxes by about 1 percent starting from the next budget. Is that what we should assume?
A: There is a balance here that we have to strike. Obviously, we have to bring down the exemptions as much as possible and as we bring down the exemptions, we also provide relief on the corporate tax side, so we are doing that, that is one part of the story. The other part of the story, of course, is that it has to enable us to meet our fiscal consolidation targets which are also quite challenging, because we have said 3.94 percent this year, but then 3.5 percent the following year and 3 percent thereafter.
So, we have our fiscal consolidation roadmap, so we have to strike this balance between bringing down corporate tax rates, removing these exemptions while at the same time, ensuring that we are able to do the revenue collection we need to ensure that our fiscal deficit is in line.
Q: Just to take that point forward, and there has been criticism from industry specifically from the pharmaceutical industry, from the auto industry, that why are you tinkering with exemptions as far as research and development (R&D) is concerned, because especially it is aligned to Make in India, Innovate in India and so on and so forth. Could there be perhaps a rethink as far as those specific exemptions are concerned?
A: I watched your show last night with Kiran Mazumdar-Shaw, Chairperson and Managing Director, Biocon and you were saying on your show that I hope you are watching. I was. And of course we take all of that input very seriously and this is an invitation for Kiran and folks in the automotive industry, to come and tell us what they think is the right way to do it. And that is precisely why we put this out. We signalled this in the budget, we have been talking about it for almost a year now, we have now put forward a roadmap, we hope that when all of this is taken into account, that there are not any losers. That it is winners all the way.
Right now it seems to me that the pharmaceutical industry and the automotive industry feel like they will be losers in this. So we need to understand exactly where their pain points are, what their issues are, what can we do to make it work.
Q: So you are open to that?
A: Kiran is exactly right. We are open to thoughtful and good suggestions at any point from anyone. We are always open. That is not the issue. The issue is, how do we find this glide path; how do we find a way to ensure that as Kiran was saying last night, that we can innovate in India, we can make in India while at the same time bringing down the exemptions. You should know, and I think all of the business knows, and we hear this from them all the time, that all these exemptions result in a lot of litigation and a lot of confusion, our tax authorities get confused sometimes, they are not sure sometimes, on the business side it raises complexity. So we want to dramatically simplify. We think those simplifications, making it really straight forward to understand what your taxes are, will be a big boost to business. So we hope there will be winners all around.
Now if along the way there are some losers because of some specific situations in specific industries, obviously we would want to sit down with them and that the whole point of the consultation, to recognize where it is that it is being counterproductive, if at all. So open invitation to Kiran and everyone else. Please come and see us.
Q: Let me ask you about the fiscal challenges that you spoke of and I ask you this in the context of the recommendations made by the 7th pay commission. It will not impact the fisc in this year but it is going to have an impact as far as next year is concerned. 0.65 percent of GDP as per the recommendations of the 7th pay commission. There are concerns as you probably have seen the reports from Fitch and several others stating that they don’t believe the fiscal deficit target for the next year will be met on account of these pressures, how would you respond to that?
A: People are talking about it as the trilemma, which is on one hand you have the pay commission coming in, on the other hand you want to step up public investment particularly in hard assets and then ofcourse you have the fiscal deficit. So, how do you kind of reconcile these three conflicting targets. Obviously that is really what you pay us for, that is why we do what we do. We have been spending a lot of time working through all the different scenarios, looking at all the different parameters, doing a medium term fiscal planning to ensure that we can actually manage all of these different things. It is certainly challenging, obviously we are going to have to be very careful about how we do our fiscal management, we think we can pull it off, at least that’s what our analysis is showing right now.
Q: Will expenditure cuts mean the way forward as far as pulling it off is concerned?
A: That is too simple minded. It is not only about expenditure cuts, there are a variety of things. We believe that if we can get GST passed, GST will help us as far as the tax buoyancy and the tax revenues are concerned. We think simplifications in the corporate tax code will help us as well. So, there are a variety of factors that we are taking into account. We are also hoping that the economy will certainly be picking up, already we are starting to see the signs as far as consumption is concerned. You have seen that in a variety of indicators whether it is electricity production, petrol and diesel usage, commercial vehicles, passenger vehicles all of these numbers are starting to trend very positive. Investment on the public side continues to get stepped up, we made a number of big announcements when it comes to example the locomotive factories, on defence side, FDI of course continues to flow in. So, for all of those reasons we think growth is going to be strong and therefore the tax buoyancy that you get when tax revenues go up faster than GDP growth is something that we will begin to hope, to see the benefit of next fiscal year as well.
Q: You are betting on the recovery really picking up as far as the economy is concerned but I ask you this in the context of the fact that trouble continues to be extremely gradual at this point in time. Private investment hasn’t picked up, even consumption at this point in time is patchy. There are concerns that what you have done as far as imposing the Swachh Bharat Cess on service tax is going to further crimp on the consumers ability to be able to spend, it is going to further crimp on discretionary spending. How would you respond to that criticism and do you really believe that the kind of growth estimates and the growth targets that you had held out hold today because that doesn’t seem to be the consensus on the street?
A: The growth targets are going to come through because we are seeing the indicators of economic activity, we are seeing the strength in consumption, we are seeing the public investment, remember there is a lag effect to some extent. When you look at earnings and you look at profits or even when you look at direct taxes, you are really looking at a lagging indicator.
We are paying a lot of attention to leading indicators. As I said we are looking at electricity production, fuel usage, indirect tax collections which are up strongly as well, these are leading indicators.
Q: That is largely on account of excise. Stripped of excise it is 11 percent.
A: No, that is not true. It is actually quite strong given the fact that inflation has come down as much as it has and this is more on the WPI side because we are looking at indirect taxes in many of these categories. So, it is actually quite strong when you look at indirect tax collections and these are leading indicators. So, certainly we see the economy picking up.
As far as Swachh Bharat is concerned, we have to understand that with Swachh Bharat we are going to make a difference in the lives of people who are really in dire need of sanitation. This is money that is being collected from us, actually our overall tax burden in India if you look at it our total tax collection 15-16 percent of GDP, China is at 25 percent, Indonesia is higher than us, OECD average is 35 percent. So, that money is going directly to build community toilets, to build toilets, to deal with sanitation.
Q: Into the Swachh Bharat Kosh?
A: Absolutely. It is totally money that is going in with a direct line of sight, we have accountability around it and it is going to make a big difference to people.
Q: This is criticism – I had Sitarama Yechury on my show yesterday saying that we hope that what the government is collecting by way of the Swachh Bharat Cess is not going to be used to powder the fiscal deficit next year? How would you respond to those concerns? We have seen this consolidated fund of India sort of being this big black hole that sucks up all kind of things?
A: It is completely transparent. You come with me, I will come take you through all of the details through the Budget. Every rupee is accounted for. There is no black hole. It is your money, you are paying for all of this, all of you are citizens.
What I will say is that at some level if you want to be kind of humorous about it, all money is fungible. So, you can say why is this money going here or there, that is true. However the reality is, the benefit of having this is, we thought long and hard about it and we concluded a Cess is a better way to do it.
If you look at what has happened with the road Cess and going into national highways, that line of sight has created direct accountability on roads and made a huge difference there. Sarva Shiksha Abhiyan, line of sight on education, goes straight into the HRD ministry, schools get built. Similarly sanitation is one of those very compelling public needs where we want to make sure that this money line of sight goes directly into urban development, for community toilets and toilets in slums and other areas that deprived. Similarly it goes into drinking water and sanitation on the rural side to build toilets over there. We have tremendous accountability around that. We are working with each of these two ministries. In fact you can go up on their website and see month by month how many toilets are getting built.
Q: Let me move on and talk to you about out of the box revenue raising ideas because as you said cutting down expenditure is perhaps the simplistic way of approaching the problem that you are faced with on the fiscal front. What out of the box ideas can we now see? I am hearing a lot of talk about further sops as far as reviving the housing sector, so maybe we could see some sops specifically for housing and the government has plan of housing for all by 2019. Could we see something on that front, could we see innovative ways of trying to maximise the revenue that you could get from IDBI Bank as opposed to a regular disinvestment process that the government is currently thinking of, what could be those out of the box revenue generating ideas?
A: If you look at out of the box revenue generating ideas certainly disinvestment has an important role to play there. We have a whole host of public enterprises, obviously some of them have been hit hard by what we are seeing as far as commodities are concerned, metals are concerned. So, we will obviously go slow there till we get a good valuation that all of us as citizens will be happy about. However there are many other sectors that we could consider, certainly IDBI is an opportunity for us to do transformation just like we have done with Axis Bank.
Q: Is that the route that you are considering, could you look at perhaps some other alternatives as far as IDBI Bank is concerned? I am hearing from people in the market that spectrum is a scarce resource, people want a banking licence, may be this could be the opportunity for the government to look at this banking licence route.
A: There are many revenue sources and like I said obviously strategic disinvestment is a place which we can look at, disinvestment in general we can look at in terms of other public enterprises, we have a host of enterprises that are loss making where there is already agreement…. (Interrupted)
Q: We haven’t seen any move on strategic sales yet?
A: We are moving through that. They have to go through a particular process. You have to remember that after the UPA government decided not to do any strategic disinvestment the whole process by which strategic disinvestment was happening which means transfer of control had completely atrophied. So, we have to go back and resurrect those processes.
Q: Would we see some in this fiscal?
A: Let us see. We are getting the process restarted and so let us see what we can do there. Strategic disinvestment is certainly an opportunity. Obviously we have natural resources including spectrum where we have an opportunity to do more. Then finally I would say that there are still certain assets that we have whether it is hotels and others that we could consider.
More to come