Revenue estimates have been prepared in a somewhat conservative manner… The numbers are reasonable, but it can still go wrong. If we do have to make adjustments, we will not touch the capital and growth-oriented parts of the budget, says TV Somanathan.
There is a large output gap in the economy and in such a situation there is nothing wrong with pressing the fiscal pedal, expenditure secretary TV Somanathan said. The budget numbers are reasonable and if there is need for adjustment, the capital and growth-oriented parts will not be touched, he said in an interview with ET. Edited excerpts:
It seems from the budget that the government has recognised that growth is a priority and is willing to spend. What if revenues fall short? Will the deficit be allowed to expand to ensure growth?
First of all, I would say that the revenue estimates have been prepared in a somewhat conservative manner. If you exclude an exogenous shock such as what happened in 2020-21, I doubt that we’ll have a serious revenue shortfall. The numbers are reasonable, but it can still go wrong, I admit. If we do have to make adjustments, we will not touch the capital and growth-oriented parts of the budget – that would be our approach to the adjustments that are necessary.
Is this a fundamental reset in the way the government has approached the economy so far because there was a lot of emphasis on macroeconomic prudence earlier? Now, has the focus shifted to growth?
No, I would not read it that way. In fact, I think the word prudence must not be misinterpreted to mean stinginess or frugality. What is prudent depends on circumstances. In the present circumstance, there is a large output gap in the economy – there is nothing wrong with pressing the pedal. At this time, to increase your fiscal deficit is, in fact, prudent and in that sense, not inflationary. But I would not see it as an approach which says that fiscal prudence doesn’t matter. It is not that we will now just spend and not worry about the deficit. That is absolutely not the case. In the circumstances that prevail now, this is the right policy. It will change, depending on the pace of normalisation, the pace at which the economy recovers.
The FM has already said next year’s fiscal deficit target is 6.8% and then by FY26 it will be 4.5%. So is this going to be our glide path?
For this period, yes. It is our intended road map up to 2025-26. It is 6.8% terminating at below 4.5%. Now, how much below will depend on the experience this year, what the growth rates are and, in fact, I would say if we can consolidate faster, we will, but we will be below 4.5% in 2025-26.
Will there be a kind of flexibility around a particular number or a fixed target as has been the case?
There are several options. One is, of course, the old concept of a range instead of a fixed number. The other is that you link it to rates of growth or the performance of the economy. The previous FRBM committee has looked into several of them. Also I think there has been a lot of change post-pandemic and there is a reappraisal of the macroeconomic concepts behind these numbers. All of these will get factored into it for what it will be, but I don’t want to speculate.
There is a new scheme for power discoms. How are we approaching this because in the past few years we have seen that any scheme has not worked?
In the new revamped power distribution scheme, in order to access this money, the initial step is that they have to prepare an acceptable plan to reach certain targets of financial sustainability over a short period of time of two to three years. After that, a small amount of money flows, based on the agreement on the parameters. Thereafter, everything else is backloaded to completion of those milestones. If the milestone is not completed, the money will not flow… it is not a case where money is given and reform is expected. It is to reform and then take the money.
Allocation for the contingency fund has been raised substantially. What was the idea behind it?
The UK moved long ago to a system of a 2% contingency, saying that every year the contingency amount is 2% of last year’s expenditure. We had remained for a very long time on an absolute amount and that absolute amount did not get changed with the size of the budget. This year we felt it because of the pandemic. So, basically we are catching up for what was not done… we have fixed it at 1%.
On rationalisation of centrally sponsored schemes, what are we looking at?
What traditionally happened was the new (schemes) kept coming and the old also remained. In a modern dynamic economy, one needs to keep changing. One or two new can come, but at the same time, the old ones need to drop off. So, this year, our intention is about one-third of that number will be either closed or merged or broad-based – 131 is the present number, one-third of that, very roughly, will get merged or closed.