Facing a barrage of criticism including from elements within the ruling coalition for slowing growth, finance minister Arun Jaitley on Thursday mounted a strong defence of his handling of the economy.
Facing a barrage of criticism including from elements within the ruling coalition for slowing growth, finance minister Arun Jaitley on Thursday mounted a strong defence of his handling of the economy. Demonetisation’s object was not synonymous with confiscation of currency, he said, adding that whoever deposited money in excess of their legitimate resources in the banks during the process will have no option but to pay up their taxes. “(The composition of high-denomination bank notes in currency) has altered, and stands compressed,” he said, adding that the process of compression will go on. Addressing a gathering at the launch of a book co-edited by PM’s Economic Advisory Council chairman Bibek Debroy, Jaitley listed out the Modi government’s achievements in increasing foreign direct investment inflows, infrastructure spending and cracking down on the informal economy. He said that the challenge was to find a balance between fiscal prudence and ensuring the necessary spending.
Earlier in the day, Jaitley held marathon sessions with chiefs of CPSEs, extracting a pledge from some of them to boost capital spending by an extra Rs 25,000 crore to spur growth. Reviewing the capital expenditure plans of important central public sector enterprises (CPSEs) estimated at Rs 3.85 lakh crore, the minister warned them “no slackness” would be tolerated if they falter on capital spending, which is expected to give the economy a boost along with the Centre’s budgetary spending. At the same time, he asked them to give “liberal dividends” to the government so that the money could be used for funding physical social infrastructure. Since most public sector undertakings have low debt-to-equity ratios, they were asked to “raise more debt and not to rely entirely on cash and free reserves for finding new investments and capital expenditure”.
CPSEs’ capex last year was close to Rs 4 lakh crore; the spending target has been lowered for the current fiscal as many large CPSEs like Coal India, ONGC, NMDC, NTPC, NHPC, HPCL and National Aluminium Company have their “cash and equivalents” at substantially lower levels now than a year ago. Separately, the finance minister met various export associations, listening to their demand for faster duty refunds and procedural smoothness in the goods and services tax (GST) regime.
Stating that the experience with the roll-out of GST — despite some teething problems — has been encouraging, he said the first two months’ GST revenue indicated that few states would need to be compensated for any revenue. The collections were close to the anticipated levels even in these initial months, he noted, adding that these could increase further in the coming months.
Referring to the slow pace at which GST returns are being filed, he said 95% of the GST revenue comes from around 4 lakh assessees (while the total tax base is 90 lakh and some 65 lakh were eligible to pay taxes in July and August). He said the 15.4% growth in direct tax collections so far this fiscal — which incidentally is just on par with the budgeted level — was aided by demonetisation.
The meeting with heads of major CPSEs in sectors like petroleum, defence, power, road transport, railways, coal, mines, steel and atomic energy comes even as the growth in Centre’s own capital spending to boost the economy has started to slow down a tad, compared with the fast pace in the first quarter. Budgetary capex touched 36.56% of the full-year target in the April-August period of 2017-18, against 36.97% a year earlier. With the Centre’s fiscal deficit hitting 95.97% of the full-year target, it doesn’t really have much of a leeway to substantially step up productive spending without breaching the fiscal red line. Even states’ capacity to increase the capital spending seems to have been constrained this fiscal, thanks to their farm loan waivers.
CPSEs and departmental undertakings had invested Rs 2.54 lakh crore in large (Rs 500-crore-plus) projects in 2016-17, achieving a creditable 96% of the annual target. So investments by them from their internal and extra budgetary resources kept pace when private companies’ capex remained muted and the Centre’s budgetary capital expenditure also slowed a bit in the final months of 2016-17. In April-August this year, the fiscal deficit stood at Rs 5.24 lakh crore, or 95.97% of the full-year target; in the year-ago period, the deficit had barely touched 74% of the annual target.
Supporting the government’s case for a sharp rate cut, former finance minister P Chidambaram told CNBC-TV18 that the monetary policy committee should cut the repo rate by 50 basis points, as “there is enough room because inflation is still low”. He added: “They should have done that in the last meeting (in August) or the one before that (in June).”