Economic Affairs Secretary Anuradha Thakur talked about the Budget’s revenue assumptions, the alleged lack of sufficient buffers to address the external uncertainties, and the upcoming review of the inflation-targeting framework in a post-Budget interview with Prasanta Sahu and K G Narendranath. Edited Excerpts:
What is the intent behind allowing foreigners to invest directly in the equity market under the Portfolio Investment Scheme (PIS)?
We are extending the facilities currently available to NRIs and OCIs (Overseas Citizen of India) to all persons resident outside India, including foreign individuals. Earlier, foreign retail investors did not have access through this route and had to invest via the FPI or FDI channels.
Now, the individual investment limit under the PIS has been raised to 10% from 5%, and the overall limit in a company has been increased to 24% from 10%. This is aimed at easing access and improving the ease of doing business. Foreign retail investors who are interested in Indian companies will find this route simpler compared to registering as FPIs.
Currently, they need to register as FPIs, which involves significant compliance. Only 88 individuals have registered as FPIs so far, with assets under custody of about Rs 400 crore. We felt this route was underutilised and that liberalisation, after consultations, would help attract wider participation.
That said, safeguards will remain. We will now work with regulators to determine the necessary compliance framework. The intention is to keep it far less compliance-heavy than the FPI route while ensuring regulatory comfort.
The issue of capital outflows may need broader measures like raising foreign direct investment ceiling in residual sectors like banking and easing of portfolio investment caps. Are such steps to be expected?
There are ongoing discussions in some sectors, including banking. Individual departments are firming up proposals, and these will be taken up in due course.
On managing higher-than-expected borrowings next year?
How will you manage the higher-than-expected borrowings next year? Are bond switches (replacing short-term papers with longer ones to relax the repayment pressure) being considered?
These decisions are largely managed by the Reserve Bank of India, though we are indeed consulted. Both the RBI and the government closely monitor yields, as we do not want them to harden excessively. There will be significant redemption pressure next year, which explains the higher borrowings.
Switching to short-tenure bonds with longer ones is one tool. Buybacks are another, subject to cash availability. We will use these instruments as needed, depending on market conditions.
This year, the share of long-tenure government bonds was around 30% of total issuance. How is it going to be next year?
We will try to do the whole range, and respond to investor appetite. The investor interest somehow has been mixed this year. There was more appetite for the 10- and 5-year tenures.
We have to balance many things, including large repayments. We will keep all of that in mind and make the borrowing calendar in such a way that investor appetite is adequately responded to.
Would the longer tenure G-secs issuances be around 30% next year like in FY26?
We will issue bonds across the maturity spectrum but will remain guided by investor appetite, which has recently favoured 5- and 10-year papers. Repayment pressures will also shape the borrowing calendar.
With slower tax growth which may take time to resolve, what are the other non-debt options that may be employed to boost budget receipts in the medium term?
We have taken a realistic view on tax projections. However, we still hope for better-than-budgeted performance in Goods and Service Tax (GST) and direct taxes during the next year. On the non-debt capital receipts side, asset monetisation is a key focus area, and we believe we can do more there.
On strategic sales
Any large strategic sale beyond IDBI Bank being planned for FY27?
Several proposals already have in-principle approval. The DIPAM (department of investment and public asset management) has shown strong momentum in the past nine months across large and small transactions, and this will continue.
How would the inflation targeting framework evolve, as it is coming up for review by March-end?
The framework has served us well and has kept inflation within a reasonable range. Now that the Budget process is over, we will review it through consultations before taking a call.
With this review and new consumer price index series to be unveiled this month, do you expect more leeway in the conduct of monetary policy?
With the ministry of statistics and programme implementation (MoSPI) adopting modern statistical techniques, we do not expect any sharp or disruptive change in inflation readings due to the new series. Of course, the base revision will naturally have some impact.
What do you seek to achieve with the proposed review of FEMA (Non-debt Instruments) Rules?
We are considering a comprehensive review. The 2019 rules consolidated many amendments and have worked well, but it has been six to seven years. With evolving investor profiles and representations coming in, a wide consultation could help create a more contemporary and flexible framework, including on Foreign Direct Investment definitions.
The aim is not just to make the rules user-friendly, but review the FDI definitions also. There are different views on this depending on where you stand and see the whole gamut of issues from.
We have not completed the examination of the issues yet. We thought it’s a good time that since we are getting representations even now on this, we should have deeper and wider consultations, The idea is to complete the review in such a manner that we will remain flexible and be able to satisfy a number of clients in the outside world.
The clientele is also changing very fast.
Is the 16th Finance Commission award going to be a net gain for the centre’s own finances, with steps like scrapping revenue deficit grants for the states?
Not significantly. While vertical devolution is 41%, grants to urban and rural local bodies are substantial, so the net fiscal impact for the Centre is limited.
Social sector spending continues to be below expectations; in some cases, the outlays even lag the overall budget growth…
Education and health are largely state subjects, and states also need to step up. At the Centre’s level, many new institutions and schemes have been launched. Some consolidation and feedback are needed before expanding further.
We have announced a number of (educational) institutions in the budget . We feel that a lot has happened. For example, the PM Shree schools. We need to also let these measures stabilise, give us some feedback, before taking the next few steps.
The government has seemingly chosen to leave savings, investment and consumption decisions to the people. Tax policies are no longer used to influence such decisions and the EPF withdrawals are made much easier. At the same time, household savings are at a low ebb..
Household savings are increasingly diversifying into capital markets and non-bank instruments. The approach so far has been to allow this diversification, so that investment opportunities are not limited to a narrow segment of society.