While many, including this newspaper, argue for increasing government expenditure in order to stimulate the economy in the absence of any other growth-driver, and the fact that structural reforms take time, others argue this is a bad idea.
While many, including this newspaper, argue for increasing government expenditure in order to stimulate the economy in the absence of any other growth-driver, and the fact that structural reforms take time, others argue this is a bad idea. Bond markets, they say, will get spooked, rates will rise and that will counteract any fiscal stimulus. This is missing the woods for the trees. The fiscal deficit is meant to be countercyclical, it is only in India where we don’t trust the political class, and so have a one-way declining trajectory for the deficit. It was to counter this that the FRBM committee allowed for a 0.5 ppt increase in the deficit if there were disruptive structural changes in the economy, such as GST—use that leeway, as the chief economic advisor has been recommending since the last budget.
More than that, a useful thing to keep in mind is that the government does not have a shortage of money, not now, not later. All that it lacks is either the desire to spend or the imagination to get the money. A good example is the SUUTI shares the government had for years but simply refused to sell. In February 2015, just before the Budget was presented, SUUTI’s shares were worth Rs 65,100 crore. But instead of selling a part of these to meet its Rs 69,500 crore disinvestment target for FY16, the government missed this by close to Rs 27,000 crore—the government’s residual equity in HZL/Balco was worth another Rs 15,000 crore, but there were some legal issues that held up the divestment of that.
There are Rs 5.8 lakh crore of disputed direct taxes alone and a target for resolving that is something which has been talked of for years, but has never been even achieved in any meaningful manner—the main reason for that, gaps in the statute that don’t allow for a settlement, are the subject of another column.
Much like SUUTI, there is a windfall to be got from lowering the government stake to 51% in 69 listed PSUs. This alone, and we’re not even talking privatisation as yet, can fetch the government Rs 2.72 lakh crore—that’s a seventh of this year’s likely tax collections and 3.8 times the divestment target! Selling off PSU stakes to fund consumption, needless to say, will recall the talk of selling family silver to pay for everyday groceries, but if this could, say, be used to recapitalise PSU banks, that would be looked at very differently—a recapitalisation bond is another possibility, with just the interest costs of that figuring in the fiscal deficit. Of course, to prevent banks from being in such a situation again, any recapitalisation has to be accompanied by a plan to aggressively privatise them.
While cutting the huge subsidy bill is long overdue—the Food Security Act envisages giving two-thirds of Indians massively subsidised wheat/rice—just moving from giving them foodgrains to giving them cash will save Rs 38,000 crore every year. What we spend today is Rs 1,45,000 crore, but what we need to is Rs 1,07,000 crore—that’s 81 crore people into 5kg of wheat/rice per month into Rs 22 or so per kg, which is the difference between the PDS price and the free-market price. This, by the way, does not include the Rs 1,30,000 crore that FCI’s stocks of 48 million tonnes of wheat and rice are worth today—once India moves to cash transfers, it doesn’t need such huge stocks, but let’s assume the government wants to keep them for safety as well as to be able to dump in the market if prices rise.
Roads minister Nitin Gadkari talked of, a few months ago, being able to raise Rs 55,000 crore of capital by just monetising 100 projects being run by the roads ministry—and that’s on top of the Rs 70,000 crore of masala bonds that were given tax exemption in the budget. In addition, various infrastructure projects, from the Delhi Metro to the Delhi airport, it has to be recalled, were largely made viable by huge dollops of land from the central government.
In other words, the real constraint is not, and never has been, the shortage of money. Keep in mind, we are not talking here of the inability to get the money due to operational constraints—so we are not talking of the lakhs of crore rupees stuck in government land for which there may not be adequate ownership deeds or there is pending litigation. The real issue is, and always has been, the ability of the government to spend the money—unlike roads, railways and power, not too many government ministries have the ability to rapidly scale up projects and execute them year after year under ministers like Gadkari, Prabhu and Goyal.