Finance secretary Arvind Mayaram dwells upon several aspects of the Union Budget in an interview with Arup Roychoudhury & KG Narendranath. Excerpts:

Retaining the interim budget estimate for FY15 GDP growth (5.4-5.6%) doesn’t look convincing, as we now have (not-so-encouraging) April-May IIP data. Absence of recovery in private consumption, a probable oil shock and weak monsoon are other negatives, while you can be sanguine about only some early, though rather weak, signs of investments picking up.

We are on the verge of seeing an uptick in the numbers. Construction is an area we are likely to see a spurt. In affordable housing, we have eased many regulatory requirements. Foreign direct investments (FDI) in real estate projects are now more welcome. The Real Estate Investment Trusts (REITs) will help supplement bank financing (of projects). An (all-round) improvement is likely during the course of the year. Correction of inverted duty structure will help domestic manufacturing. Brent crude prices only eased in the last couple of days and an oil shock doesn’t look real. Monsoons have advanced in the last fortnight.

The Budget speech shied away from mentioning subsidy reduction. You could have also looked at monetisation of government land.

Many of these things will be (done) outside the Budget. The finance minister said the government only had 45 days so far. Obviously this is only the beginning. I think for LPG (subsidy disbursal), we have to look at direct transfers. The questions are when is the right time and when do we have the infrastructure in place. Anyway, barely eight months from now, we will have another Budget.

Privatization of (commercial) coal mining…

I have no idea about such a plan.

Total expenditure for FY15 is now assumed to be about 15% higher than last year’s. Plan expenditure is seen to increase 3.5% over the interim level, which means 27% growth over last year’s level. Is the (extra) fiscal scape envisaged for real?

The Budget has created an additional fiscal space of R56,000 crore without altering the fiscal deficit number. Because of this new space, we have been able to allow higher expenditure. You may note that apart from the higher disinvestment proceeds and non-tax revenue (from dividends), the net giveaway on the tax front will actually be less than R14,745 crore (mentioned in the Budget) as the losses also go to the states. Besides, we are to get higher dividends from RBI, and there could eventually be some savings on food subsidy (from R1.15 lakh crore budgeted).

But net tax revenue growth of 16.9% looks ambitious as the last year figure was just around 10%.

The tax numbers that we have shown are credible ones. If you specifically ask for (justification of) a number, I can tell you about it.

On the indirect tax side, even as the IIP numbers have been flat in the last two years, you have assumed 15% growth in excise collection, the growth in May was just 3.5%, and in June, 5.5%.

We have taken a large number of measures to boost industrial output. We have provided for investment allowance for manufacturers investing R25 crore or more, which was earlier restricted to those investing R100 crore or more. A very large number of companies will now be eligible for this benefit. The cut in customs duties on several inputs goods and the raising of the tariff on some finished goods would incentivise domestic production. A domestically produced TV will become cheaper than an imported one, for instance.

After all, we are assuming a tax-GDP ratio of 10.6% for FY15 against 10.1% last year. If with 4.7% GDP growth, you could have the ratio at 10.1%, with a growth of 5.4-5.9%, it could indeed improve it to 10.6%.

The Centre could have prompted the states to embrace GST by announcing the introduction of Central GST (CGST) for which it needs no external help.

There is a constraint. Since the excise duty is at the level of the production units, the excise department does not have the outreach to collect it from (others). Service tax is a separate component and all units that pay excise may not have to pay service tax. And the converse is also true. When you bundle (the two taxes), they becomes one tax and will only be applicable to those who are paying both the taxes.

In the Budget speech, the FM said a solution could be found ?during the course of this year? on GST. The idea is to get the required legislative scheme approved this year.

Capital expenditure is languishing at just 12% of the Budget size (and has been around that level for many years except FY08 when it was 17%) or at 1.7% of the GDP. The figure quoted in the Budget of PSU investments of R2.47 lakh crore doesn’t look impressive, being roughly the same as last year’s target that was missed.

The new principle, as the previous finance minister (P Chidambaram) also used to say, is that either the PSU use (invest) their surplus funds or lose them (by paying higher dividends). You can’t have PSUs sitting on huge piles of cash and not investing. This year, this is an investment target that the PSUs have accepted. Last year, they achieved about 90% of the target. This year, unless the target is met, the PSUs will be asked to pay higher dividends.

Public-private partnership projects are facing problems in roadsa and power ports due to poor designing of concession agreements, unrealistic bidding and lack of a credible appraisal systems. The Budget proposed a new institution called 3P India.

There are several models for assessing the risks involved in PPP projects. It is imperative that such sophisticated tools are employed at the beginning of the project appraisal process, rather than at the time of approval. Contract designing will not be for a specific project but for the sector as a whole. There is also a need for capacity building and a strong appraisal outfit which can advise the government on projects, given the lack of in-house experts. There are a large number of other issues pertaining to PPP projects, for instance, the need for an accounting model for contingent liabilities, defining the role of take-out financing in a more nuanced manner. There are issues which require a very special focus and that is what the 3P India as an independent think tank will do.

The economic survey recommended an FRBM Act with penalties for violations. What exactly will be the role of the proposed Expenditure Management Committee?

We already have an accountability system. I don’t think we will do anything more drastic than that. On the expenditure management committee, we will look at how to rationalise subsidies and make them more targeted. It will also look at other areas of Plan and non-Plan spending.

Will Life Insurance Corporation be told to invest in REITs?

It is very necessary to disabuse ourselves off the notion that the government tells LIC to invest. Whether they invest in REITs or not, it is for the LIC board to take a call. There will be thousands of REITs. Some will (offer) higher returns and involve higher risks. If LIC finds that REITs are vehicles through which they are able to get long-term returns, certainly it would invest (in them).