With only a day to go for India’s biggest tax reform goods and services tax (GST) to roll out, CNBC-TV18 spoke to Finance Secretary Ashok Lavasa.
He also spoke about the Cabinet approval of recommendations on HRA and other allowance made by the committee led by him and about the approval for sale of government’s stake in Air India.
He was also asked questions about the recapitalisation of PSU Banks and the fiscal consolidation road map
The Cabinet Wednesday approved 36 modifications to the 196 suggestions put up by the Finance Secretary Ashok Lavasa-led committee in April.
Lavasa said the pay Commission had assessed the total liability to be around Rs 29,600 crore and now it is expected to be around Rs 30,700 crore on account of higher pay to government employees.
With respect to Air India divestment, he said it would be premature to determine the course of events but said the divestment is approached with a sense of urgency.
On the implementation of goods and services tax (GST) he said, it will certainly impact the economy but for the good. The date for implementation was arrived with great consensus, so it is not a surprise. The network, framework, rules, procedures are concerned it is well under control, he said.
Below is the verbatim transcript of the interview.
Q: Let me start by asking that Air India disinvestment as well as the allowance clearance has now come in. Starting off first with the allowances part of it, there is no provision in the Budget as of now obviously because it is supposed to be prospective in nature. How would you see it going forward, will you make that provision and how will this really pan out?
A: You are right that the Cabinet has taken a decision on releasing the allowances for the central government employees with effect from July 1. As far as the Budget provision is concerned, we will at the time of supplementary’s and the revised estimate (RE) stage take a call on what would be the liability and what is the additionality that has to be provided. However, I want to assure you and everyone that there will be room enough for us to discharge our liabilities as far as the allowances are concerned.
Q: You already have an existing Budget provision and first you will utilise that plus first quarter impact will not be there, so, at least for this financial year kind of sorted but going forward it would be A+B so you will be looking at a larger number from next financial year onwards?
A: As the pay commission had assessed that the total liability on account of the allowances would be of the order of Rs 29,600 crore and if you take the impact of the cabinet decisions that have been taken yesterday, it would mean another Rs 1,400 crore. So, in all we are looking at close to Rs 30,700 crore. This is quite close to what the pay commission had assessed. So, it is not as if that it is a surprise for the Budget makers. For the pay and pension we have already made provision. For the allowances also since the first quarter liability is not falling this year but we will take care of the balance requirement.
Q: Also in terms of Air India now that the in-principle nod has come in in terms of the stake sale, of course the special panel that has been set up or rather the specific AM has been set up to take this process forward but coming to the issue of debt of Air India, there is already around Rs 25,000-30,000 crore which government is pumping in over a period of time and there are some other additional liabilities. How do you see this debt structuring going forward, what can be the mechanism forward, what may be the impact on the exchequer if at all?
A: These are exactly the kind of issues that the AM will go into. So, it would be at this stage a little premature to say what is the course that events will take and what will be the shape of things as far as the liabilities of Air India is concerned. However, the balance sheet of Air India is open, so, everybody knows what are the assets and liabilities and there is a set procedure for the department of public asset management to follow and they would be guided by AM which the cabinet has approved yesterday.
Q: On a broader note, we understand that the liabilities were calculated at around Rs 50,000 crore but out of that if you take in account the fleet of Air India and the properties of Air India, the actual debt restructuring that may have to be done would be of slightly lower order of around Rs 25,000-30,000 crore?
A: As I said that this is not the appropriate stage for us to spell out the details precisely because all those things would be under consideration and various assessments will be made, analysis will be done. I am sure experts will look into it and come up with alternatives which are in the best interest of the government as well as Air India.
Q: Do you expect this process to actually pan out over the next six to nine months because there are a lot of aspects that the panel will have to go through, the government will have to take a larger call, what are your thoughts?
A: Since the decision has already been taken, the AM will be setup and then it is for the AM to proceed forward. So, although it is not possible for us to spell out the exact timeline, but all that I want to tell you is that it is being approached with a sense of urgency.
Q: Big historic tax reform around the corner, July 1 is the GST rollout, there is still a lot of anxiety and uncertainty or rather fear among lots of traders that possibly sales may be impacted, the production cycle may be impacted, the first quarter may be bumpy on GST rollout, there could be some volatility in the revenue collections as well. How do you see this whole situation and do you see that this will impact the economy at some point in time at least in the very short run?
A: Certainly it will impact the economy and I think it will impact the economy for the good considering that this has been in the works for more than a decade and the date for implementation was also arrived at after a great deal of consensus. So, therefore it is not a surprise that it is happening from the July 1. In terms of preparations, I think as far as the network itself is concerned, as far as the framework of rules and procedure is concerned, that is well under control and most of the procedures have been already unfolded.
Q: Can you give us a timeline on the PSU banks recapitalisation?
A: If on account of the current restructuring and settlement of NPAs, there is a need which is felt, then that will have to be assessed at that point in time and a new scheme will have to be looked at.
Q: New scheme in the sense?
A: Just as the first scheme looked at the requirement, similarly if there is a new requirement which comes up, then we will have to look at it at that point in time.
Q: Moving on to the FRBM panel recommendations, they have been for some time, your consultation is also over with various stakeholders, where do we stand on that as of now and what is the road forward. Can we expect something in the next two to three months or you will take your own time to take a call?
A: I think the Budget division has been examining this panel’s report and very soon this should take shape. We will have to take into account also the development which takes place during the year as far as finances are concerned and accordingly consider whether a whole scale review of the act, the way it has been recommended by the panel is necessary or a few amendments can serve the purpose. So, that call has to be taken by the government.
Q: One would be the fiscal council and the other is the roadmap, the fiscal consolidation roadmap. As of now starting off with the consolidation roadmap are we more or less in-principle in favour of adopting that or is that still a call to be taken?
A: As this government has demonstrated that it believes in maintaining fiscal prudence and discipline, it has adhered to all the targets that it has committed to in the last four years, in the last four Budgets, and the glide path which has been recommended is more or less along the thinking of the government that government must maintain fiscal discipline and at the same time it should be in a position to address the growing needs of the development of this economy, various measures of social welfare, education, rural development.
Those responsibilities will also have to be discharged by the government as we go along and one cannot overlook the fact that the aspiration level of the common people is very high and their need for more robust infrastructure, a more efficient administration, more targeted schemes for welfare, those aspirations, it is the government’s responsibility to respond to it.
Q: About the issue of fiscal council?
A: The fiscal council is a mechanism which has been suggested by the panel and they have also expanded the terms of the reference and the terms of assigning the functions to the fiscal council. So, I don’t think that there is much dispute on somebody being charged with performing those functions whether it is the fiscal council in the manner in which it has been proposed or it will require some bit of changing in order to make it more effective. So, I think these are some things which government will consider.
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