Says supply-side steps to keep inflation under check, rules out fuel price reduction
Finance minister Nirmala Sitharaman on Monday made it clear that the government won’t trim capital expenditure from the budgeted level even towards the end of the fiscal, as was customary earlier, as it banks on spending having high multiplier effect to reverse a Covid-induced slump in growth.
Addressing reporters, the minister said the message to departments on the capex front is abundantly clear — spend. The expenditure reprioritisation in the wake of the second Covid wave, too, won’t have any bearing on the capex outlay, she stressed, adding only wasteful outgo may be curbed to make way for more productive spending.
The minister also allayed fears about inflation, saying the government won’t allow price pressure to be a matter of concern. Steps have been taken to ease supply-side concerns, she added. Retail inflation dropped in July to 5.59%, having exceeded the central bank’s target band (2-6%) in the previous two months. Last week, the minister had said recovery was not at a point where liquidity support from the central bank could be rolled back.
As for capex, the Centre has budgeted a 30% rise, year on year, in such spending to Rs 5.54 lakh crore for FY22, while its revenue expenditure is targeted to drop by 5% to Rs 29.29 lakh crore. In the first quarter, budgetary capex grew 26% from a year before to Rs 1.1 lakh crore. Large CPSEs have also acquitted themselves well in sticking to their investment targets, thanks to constant prodding by the government. On top of this, 15 major states together reported a 135% jump in capex in the June quarter from a year before, driven by a conducive base. Of course, their capex was still 0.7% lower than the pre-pandemic level (same quarter in FY20).
The move to compress expenditure across dozens of departments in the first two quarters is expected to generate savings of about Rs 1.15 lakh crore, according to an FE analysis. This could substantially offset the net outgo for the government this fiscal on account of the latest relief package.
Asked if the government was in talks with Cairn to settle the tax dispute in light of the government’s latest move to junk the 2012 retrospective amendment, Sitharaman said her ministry might be holding some discussions with the company. This government has said right from the beginning that the retrospective tax amendment is bad. But it had to wait for initiating corrective action and take the matter to logical conclusion, as two major cases (Vodafone and Cairn) were going on, she said, responding to a query if the government’s latest move was forced by Cairn’s threat to attach Indian assets abroad to recover dues after it won an arbitration.
The minister said the economy is coming out of challenges posed by the second wave. But the government will keep responding to challenges, signalling the Centre’s intent to come out with more relief measures should there be a pressing need for it.
Amid growing clamour for the Centre to cut fuel taxes, the FM remained non-committal. However, she highlighted that this government had to pay Rs 60,206 crore as of March 2021 in interest for oil bonds issued by the UPA; interests of Rs 37,340 crore more will have to be paid between FY22 and FY26 for such bonds. The outstanding oil bond amount stood at Rs 1.31 lakh crore as of FY21.
While the UPA government apparently tried to show that it was cutting fuel taxes to reduce the price for consumers, it issued oil bonds, which had to be repaid by the current government out of taxpayers’ money, she said. Even states have raised taxes in recent years, she added.
The Central government levies on petrol and diesel, at Rs 32.9/litre and Rs 31.8/litre, respectively, still comprise the largest chunk of the total fuel taxes. However, even states rake in tidy sums of money as fuel taxes. Despite a 10.6% drop (y-o-y) in fuel demand in FY21, states’ VAT revenue from petrol and diesel rose marginally last fiscal to Rs 2.02 lakh crore.
Sitharaman said the government has completed extensive groundwork to facilitate direct listing of Indian firms overseas. The departments of revenue and corporate affairs have held two meetings for this purpose and the move will be a reality soon.