Public spending on infrastructure is a key highlight of this Budget. We explored many avenues of long-term infrastructure spending in terms of tax-free bonds and a fund being created where the Centre and the PSUs will contribute
After presenting his maiden full-year Budget, finance minister Arun Jaitley said despite resource constraints, he has proposed measures to help the economy grow at 8-8.5% in 2015-16. In an interaction with journalists, the finance minister said in addition to minority stake sales in PSUs, the government was not averse to strategic sale of its equity in profit and loss-making state-owned companies wherever there is a possibility for more revenue mop-up. Edited excerpts:
On challenges in preparing the Budget:
The main challenge was higher devolution to states in the light of the 14th Finance Commission (FFC) recommendations and the consequent reduced fiscal space for the central government. However, these reforms were long overdue and as a government committed to cooperative federalism, we have accepted the recommendations. A large part of the central divisible pool of taxes will now go to the states. This means states are equal co-partners and they have a higher responsibility in advancing national growth.
However, we were constrained as the resource available to the Centre had declined. Also since foreign and domestic investors were keenly awaiting the Budget, notwithstanding the constraints, we had to take measures to ensure higher growth rates within limits of fiscal prudence.
The choice we had was, if we had stuck to the pre-established fiscal deficit target of 3.6% of the gross domestic product (GDP), which is prior to the FFC, we would have had to severely cut down public spending. Neither could we abandon fiscal prudence. So, we had found the right balance in our quest to reach the 3% (fiscal deficit) target in three years instead of two years, and we stuck to that. This will give us in each of the three years a reasonable amount of flexibility and resource at our disposal which would predominantly go to public spending.
On infrastructure spending:
Public spending on infrastructure is a key highlight of this Budget. We have increased it notwithstanding the squeeze in fiscal space. We explored many avenues of long-term infrastructure spending in terms of tax-free bonds and a fund being created where the Centre and the PSUs will contribute. We also want investors, including domestic and predominantly foreign, to contribute to that. By spending less on infrastructure this year, I could have met a lower fiscal deficit target, but that would have harmed growth.
On other focus areas of the Budget:
We concentrated on manufacturing by correcting inverted duty structure and ensuring that rebates are given in areas where jobs can be created.
We also enhanced spending on the weaker and vulnerable sections, besides introducing the idea of social security for them. We gave a special place to the eastern region. We wanted more money in the hands of taxpayers. So, individual assessees will continue to enjoy tax exemptions as these measures incentivise savings. We wanted the middle class to save for their own future. Those savings will push up the domestic savings rate and it will be useful for the country. We had a tough message for those who evade the law. These are with a view to balance growth, fiscal prudence and equity and to create confidence among investors. We have proposed certain structural reforms in terms of legislations.
On subsidy reforms:
For now, oil prices are being linked to the market. On subsidies, we are now concentrating on LPG where the cash transfer system is being implemented. We will implement that in toto. We are planning to ensure that the non-deserving people in this category go out of the subsidy regime. We will await our success rate here before we proceed further. Our general approach is that subsidies will remain, but not leakages. Also, subsidies are going to be rationalised.
On reducing corporate taxes:
Most Asian economies have a far lower corporate tax rate. In the Asean region, it is 21.9%, far lesser than ours. We are losing out because we are perceived as a high tax economy by investors. Also, due to various exemptions, our actual tax realisation is only 23%. Therefore, we are asking whether we can gradually move towards a situation where tax is 25% (down from 30%) and gradually phase out exemptions. I didn’t impose it this year as I didn’t want to take the industry by surprise. So it is better if they are informed earlier and these measures are implemented over the next few years.
On special financial assistance to Bihar and West Bengal:
It is not special status, but the same benefits available to Andhra Pradesh will be extended to Bihar and West Bengal also. The benefits for industry in AP include 15% declared investment allowance, and 15% depreciation over and above what they are normally entitled to. Bihar and WB are selected were because we want to concentrate on the eastern part of the country where there are many poor people. We want to integrate them to the mainstream.