Finance secretary Ashok Lavasa says that demonetisation has led to the formalisation of the Indian economy—which will lead to better compliance—and that the GDP growth is expected to pick up in the coming months to clock over 7% for the full year despite the Q1 recording just 5.7%. In an interview with Santosh Tiwari and Prasanta Sahu, he says that the Air India disinvestment plan is on track and the next Union Budget will be presented on February 1. Edited excerpts:
As we are already in September, one of the critical questions now is whether the next Union Budget will also be presented on February 1 or will it be advanced further?
As of now, there is no decision to change what happened last year in terms of Union Budget preparation and presentation (the Budget was advanced by a month to February 1 this year). We are in the process of issuing Budget circulars now to start Budget-making exercise for the next Budget.
Contrary to expectations, the RBI annual report has revealed that 99% of the scrapped notes came back to the banking channel. What is your view? Has the demonetisation of Rs 500 and Rs 1,000 currency notes yielded desired results in terms of curbing black money?
It was never said that a certain percentage of scrapped notes will not come back. Now, people who have deposited old `500 and `1,000 notes have taken the responsibility to explain to the tax department what are the sources of their money. It is a big step forward that all the money lying in the economy in high denomination notes has now come back into the banking system. It should be seen as a step towards formalisation of an economy in which you have better compliance and you have as much in circulation of bank notes through the formal channel as possible.
The Q1FY18 GDP growth of 5.7% has been disappointing. Demonetisation impact and implementation of goods and services tax (GST) are being seen as reasons behind poor GDP show. How do you see the GDP growth panning out, going forward?
The impact of demonetisation was felt in Q4 of FY17, in sectors where cash was being used. As far as gross value addition (GVA) growth is concerned, the figures for Q4 last year and Q1 this year are the same. This means that the manufacturing sector perhaps has been influenced by the pre-GST decision-making. The manufacturers released their stock, slowing down manufacturing. However, trade and services have shown remarkable improvement. In fact, capital formation was probably the highest in Q1 this year, compared to last so many quarters. We are now probably staring at a situation where the economy is slowly reviving and exports are picking up; bottoming out has taken place. July core sector has shown a significant improvement.
Now, we have a very good monsoon and the area under cultivation has improved. Hopefully, kharif production will be very good this year. The second positive aspect is that the impact of GST is over, and manufacturing will bounce back. Thirdly, the festive season is here, so there will be a spurt in consumption. I feel that GDP growth should be over 7% when the final figure comes for this year.
Another concern area in terms of revenue is how will the government make up for the shortfall in RBI dividend payout this year…
The Department of Economic Affairs has taken up the matter with RBI, and they are exploring if another payment can be made by the central bank (RBI has paid about half of the Rs 58,000 crore dividend estimated in the Budget). It is an ongoing issue. We have to see which are the areas where there will be shortfall and whether we can make up for that from other sources.
As far as revenues are concerned, income-tax receipts grew 19% in the April-July period this year, while customs revenue rose 32%. On the whole, the net tax revenue of the Centre grew by 19%. In addition, initial GST numbers are good. We hope that this trend is maintained for the full year, keeping in mind that 18 lakh new taxpayers have been added.
You still have about seven months left in the financial year to complete the big-stake sale plans of the government. Disinvestment of PSUs like Air India, if completed in the current financial year, will also augment government revenue. Do you see Air India stake sale happening in FY18?
The Air India disinvestment plan is on track. A process to appoint a transaction adviser for Air India will start soon. The Department of Investment and Public Asset Management has a list of PSUs that will hit the market this year.
The lack of domestic private investment has been a big concern and it remains to be so, with the situation not expected to improve quickly. Is the government planning to further liberalise FDI rules to capitalise on the already record investments coming through this channel?
There is very little to be opened up in term of FDI limits. There could be some relaxation in procedures such as increasing limits under the automatic route, etc. The Department of Industrial Policy and Promotion is looking at residual issues, if any.
The government is in the process of restructuring the schemes on the basis of their utility. What is the status of the 12th Plan-era schemes? Will they continue in the same form or they will be modified?
We have allowed all the departments to continue implementing the schemes till September. During this period, they were supposed to come back for re-evaluation and re-appraisal. Most of the departments have got their schemes evaluated and received the Expenditure Finance Committee approval to continue. There is no slowdown in spending in any scheme. In fact, on the contrary, spending across all the departments—be it social or infrastructure—has shown a significant improvement. Ministries and departments have been given freedom to discontinue some schemes or some components of a scheme if they don’t want to continue them. The components of these schemes, which we feel have shown no impact, may be dropped.