In a post-Budget interview with Gireesh Chandra Prasad and Sunil Jain, the minister of state for finance, Jayant Sinha, points out that the roadmap for moving to cash transfers in the case of food subsidies would have to be that of the state governments. Also, he pointed out, it was unfair to ask the government for details of which firms they would sell shares of, or privatise, since prior knowledge allows punters to beat down stocks—“what would the Tatas tell you if you asked them which of their firms they were going to sell? They’d tell you that they would let you know once a deal took place … so why ask us?” Sinha said the monetary policy framework signed with RBI also puts restraints on government behaviour—while hiking MSPs, for instance, the government would have to keep in mind the impact on inflation, he said. Excerpts:
Will you dilute the land Bill, and can you pass it in a joint session if the NDA is not united?
There is a fine line we have to walk between making sure that people understand what we are trying to do and at the same time not pinning the opposition down too much. We are wide open to any changes that will actually improve the Bill in the best interest of farmers and land owners. Let us see what emerges. At a joint session of Parliament, the whole of NDA has to be united.
Why didn’t we see cuts in food subsidies through more use of cash transfers?
We have to align our ideas on subsidy payment with our ideas of cooperative federalism. Subsidy reform has to progress in stages. In the case of LPG cylinders, now beneficiaries have to have a bank account to which the subsidy will be directly remitted. This helps in targeting welfare benefits in a better way and in cutting down the leakages to the extent of 20-50%. We can say conservatively that we can make at least 20% savings in subsidy just by targeting it better and by getting rid of leakages. After targeting the subsidy perfectly, we can decide on, for instance, whether the LPG cap needs to be changed.
We also believe in cooperative federalism and hence many of these programmes should be decided in some ways by the states. States can decide the mode of subsidy payment including whether it should be given entirely in the form of foodgrains, or all or part of it in cash etc. Cooperative federalism also encourages experimentation at state level. Once a model works well in a state, others tend to emulate it. Gujarat has become a role model in many programmes. My home state Jharkhand is looking at emulating many of these programmes. Chhattisgarh too has done very well in public distribution system.
But if you have physical rations, you need FCI, you need large procurement, you need high MSPs … this will keep farmers hooked to growing primarily rice and wheat.
Bringing change takes time, considering the realities on the ground. We will evolve to a better approach step by step.
The government has been talking of a non-adversarial tax regime. How will you deal with roughly R4 lakh crore of existing tax disputes?
One of the reasons for our low tax-to-GDP ratio, low compliance level and a parallel economy is that the tax administration has been in some ways dysfunctional. If we improve our tax system, people would be more than happy to pay taxes. We can’t change everything overnight. There are about a lakh people in our entire tax administration. Besides, states have their own tax collection authorities. We are committed to bringing a change.
The Cabinet decided not to pursue tax demands in the case of Shell and Vodafone after the Bombay High Court ruled in their favour. Can that approach be applied in disputes involving other issues too?
In the transfer pricing case, the issues were similar and the number of cases limited. So we could adopt this approach of not further pursuing cases which were decided by a court. It is hard to generalise if we take the entire set of tax disputes.
Given the experience of aggressive tax administration, how do we ensure the black money law announced in the Budget will not be abused? The rigorous imprisonment provision makes the taxman even more powerful.
Every law can be misused. We are trying to put in place all checks and balances, to ensure that if anyone believes the tax administration’s approach is not appropriate, we can address that. We are trying to introduce more measures to make the tax administration more responsive. A lot of companies have come to us in the past asking for a higher threshold for levy of excise duty so that they do not have to deal with the tax department. It is a terrible thing. We should all feel like coming under the tax net and contributing to nation building.
The Budget says MAT is not applicable to FIIs, but what about the demand notices already served on FIIs?
The tax authorities are looking into this issue.
The Budget speaks of R28,500 crore of receipts from strategic disinvestment. What does this imply?
If we announce what we plan to sell and the manner of doing it, investors would start beating down the stock. As trustees of people’s assets, we will do disinvestment in a way that maximises the value that the government can get for people’s assets, which is a fiduciary responsibility. There will be new approaches in disinvestment.
Will there be a major push towards monetising land?
That will be done by individual agencies. Revamping railway stations and monetising assets is a major part of the railway minister’s reform efforts. Organisations such as the Bombay Port Trust have vast land holdings. We will take them one by one and ensure people get most value for those land holdings.
Will large PSUs be privatised?
We will follow a new approach in disinvestment. I am unable to say anything further on this.
In the past, monetary policy took into account many factors. Isn’t just inflation-targeting a bad idea?
The idea of flexible inflation-targeting is good for the country. The primary objective of the agreement is inflation management and the second is ensuring growth. The role of a 21st century central bank is monetary stability, particularly for India as we had tremendous volatility in exchange rate and very high sticky, entrenched inflation. If companies issue 30-year bonds, we will never be able to sell those bonds and raise funds for infrastructure as investors do not have faith in our currency and in our inflation management. We do not want to rely too much on dollar bonds which create dollar exposure and dollar liability. We would rather issue 30-year bonds in rupee. So far, the highest government bond tenure is 10 years as there is very little demand for longer tenor paper. When we demonstrate a stable inflation through an independent central bank, investors will have faith in our longer tenure paper. It is then that we can issue longer tenure sovereign paper, even quasi-sovereign and corporate paper to fund infrastructure.
How will you deal with the issues that come up such as food inflation which has a lot to do with structural issues?
The monetary policy agreement pertains to the government as well as the central bank, both of which are parties to it. This government has been very responsible in handling inflation. We should invest deeply on supply side so that the investment cycle turns around. Once we do that, all the macro numbers change. Low oil price has given us the cushion to deal with legacy problems quicker than we would otherwise have.
Are you encouraging consolidation of public sector banks by limiting the infusion of capital?
The primary problem we have to solve in the banking sector is of performance and talent. If we address these two issues and, along with it, if interest rates come down, the capital shortage banks talk about would largely get resolved. We are going to delegate the powers of the finance ministry to the proposed Bank Bureau which will be staffed with eminent people including former bank chairmen. The Bureau will recommend important appointments, figure out the differentiated strategies for these banks, including on consolidation, and advice on capital raising, including from innovative financial instruments used the world over. The Bank Bureau, which will have expertise in the sector, can evolve into a bank investment company that owns stakes in these banks. This opens up another way through which we can raise capital for banks. If all other government functions are delegated to the Bank Bureau, all that is left is transferring the share ownership to the Bank Bureau.
Will government shareholding come down to below 51% under this new structure?
The empowered bank boards will decide on that issue. By creating the Bank Bureau, we are enabling the bank boards to do what is genuinely in their commercial interest.