The Budget for 2024-25 has kept the level of investment up with a 11 per cent-plus increase in capex and a continuing focus on macroeconomic stability, Finance Secretary TV Somanathan said. In a post-Budget interview with Aanchal Magazine and Anil Sasi, the Union Finance Ministry’s top bureaucrat also said that the conditions for capex support to states may differ in the next financial year, for which the guidelines will come out in due course. Edited excerpts:
A: I wouldn’t see it that way…I think they’ll take their decisions based on whether they think there are profitable investments to be made. There is no signalling intent in what we have done. What we have done is to provide for the level of capital expenditure that is appropriate, given the overall fiscal circumstances and the current growth rates. And I think this level of capital expenditure is more than enough to sustain the present growth rate, with or without private investments…next year’s rate of capital expenditure as a share of GDP is higher than this year, as a share of budget, it’s higher than this year.\
So if you make a hypothetical assumption of no change in private capital expenditure, we should still get approximately the same outcome. If private capital expenditure comes in, we should accelerate, but I don’t think we will see any deceleration regardless of what the private sector does.
When we do this budgeting, it is not like a monetary policy statement, which is attempting to communicate something. This is not a communication statement. This is an operational statement of the government’s finances. It will have certain pluses, minuses, effects. No part of this statement is designed as a message to anyone. It is not designed as a message to rating agencies. It’s not designed as a message to bond markets. It’s not designed as a message to the private sector. It is a statement of how we intend to manage the public finances. People can use that to decide what they have to decide.
Q: For states?
A: For states, our statement is very important, because the amounts of devolution, what grants they will get etc. That’s an operational thing.
Q: But with respect to the capex for states
A: Rs 1.3 lakh crore has been continued for one more year. That is important for them and that has been provided. This is not a continuing or a permanent scheme, but it’s being continued for one more year.
Q: Will the conditionalities stay as earlier?
A: No, they may be different. But (Rs) 75,000 crore of it will be based on reforms. That has been mentioned in the Budget.
Q: But the conditions might differ?
A: We will have to re-issue our guidelines looking at what is most relevant for the coming year. What has been the experience with the earlier ones, which components have proved useful, what new initiatives are there which need to be promoted? So we’ll come out with guidelines in due course.
Q: When it comes to the question of rekindling the private sector investment cycle, there are multiple factors. Bank credit to Indian industry is way lower than what it is in, say China, so the cleanup of bank balance sheets and corporate books might help. But on the flip side, there are concerns about consumption still not picking up, being at lower levels. Industry’s capacity utilisation is still hovering around the 75 per cent mark. The corporate tax cut failed to enthuse industry. So, has something changed on the ground that gives you the confidence that industry will start investing?
A: Look, I think what we have done from our side is to keep government investment up with the 11 per cent plus increase. We continue to support a number of production linked incentive schemes, which are creating capital investment in those sectors. I agree, that’s a small subset of total industrial investment. But in those subsets, investment is coming. We have evidence of some of them taking off, some have not taken off. But the ones that have, there is investment coming. There’s evidence of that.
We have some initiatives announced in the Budget, particularly on, for example, private sector projects in innovative sunrise sectors. These things could have some effect in the medium-term.So the Budget is very much focused on the medium-to-long term.
Short run what to do with capital investment? Well, there’s one positive thing: if we reduce our burden on available savings, hopefully it’ll have some impact on both availability and cost of funds to the private sector. That may perhaps tip the balance in favour of more investment. But beyond that, I really don’t know what specific effect this budget would have on private investment intentions.
I can only say that perhaps this macroeconomic stability that it intends to preserve may create a good investment climate. And if the climate is good, then eventually I think India will remain one of the fastest growing countries in the world. And investment resources will eventually get attracted by the growth that’s happening here, so long as we don’t mess things up. And if we don’t act imprudently or do things which are negative, I think it will come, it’s a matter of time. It stands to reason that somewhere, if this continues to grow at 6.5 per cent, even without much capital investment from the private sector, eventually somebody will have to invest to meet this demand.
Q: What are going to be the likely scale and contours of the housing scheme announced in the Budget?
A: It’s yet to be fully designed…it will be a scheme of moderate size. It will provide some incremental support to certain deserving sections of the middle class…people with modest middle class incomes, and provide them with some kind of cheaper loans to acquire houses. Not necessarily only an interest subvention, may or may not be an interest subvention, it may be lower-cost loans through priority sector credit schemes, and so it’s a combination that is being looked at…it’s still being designed and it would not be fair for me to give details at this point.
Q: In terms of the allocations to the states, what is the expectation for the coming year?
A: See, every year we offer this money, but we do make it conditional because we want to achieve something with this money. It’s not merely just extending money to the states. For that, we can simply give a grant and they will also be happy. But no, we intend to achieve two purposes: one to stimulate capital investment, our investment may be in big railway projects and highways. Theirs could be in rural roads, culverts, school buildings, hospital buildings. That is fine, but it has to be capital investment. Second, through this window, we want to incentivise them to do some state-level reforms. Now some states are willing to do it, some are not willing to do – and that’s their choice. But we are not necessarily going to make it unconditional so that it gets spent. I was asked that consumption could have been supported if you just gave them money and they would have spent it. No, I think there is a short-run, long-run trade off. So, I think we are trying to get that calibration right to make it a reform, which is necessary, worth doing and doable. Then it’s for the states to choose, states have their own circumstances. And I am not saying that everybody can do what we are asking (to do), but those that can, will get this money. So, it’s a combination of an unconditional component and a conditional component, similar to this year but the specific reforms may differ.
Q: There was buoyancy from the tax revenue side, which helped you a lot. But was there expenditure compression on the other side too?
A: There was no conscious expenditure compression, but there has been undershooting in several of the schemes, where departments have not been able to spend what was available in the Budget. And then there has been some undershooting in the capex also.. We reached 95 per cent over much enhanced capital, and this is not a bad performance at all. So, there too, we saved a little bit. So the combination of revenue, and… non-tax revenue has gone up a lot.
Q: Despite divestment?
A: Divestment has gone down, but non-tax revenue has gone up substantially, dividends from RBI and banks and PSUs.
Q: Are you expecting an even higher dividend from RBI next year?
A: I am not expecting a higher RBI dividend next year. I am expecting overall the non-tax revenue will go up. There’s also some telecom revenue there, which will be quite substantial, over Rs 1 lakh crore. All of them together, we expect next year’s non-tax revenue to be slightly higher than this year.