Won't do disinvestments just to fill gap in Budget, says Finance Secretary TV Somanathan

Finance Secretary TV Somanathan

In a bid to de-emphasise disinvestment as a source of fiscal resources, the central government has avoided keeping a specific target in the interim Budget 2024-25, Finance Secretary TV Somanathan told Moneycontrol in an interview on February 2.

“The point is, we are looking at a more integrated strategy where decisions are not taken based on short-term fiscal priorities. They are taken on the basis of maximising the value of our investment and not based on having to fill some gap in the Budget by having to dispose of certain shares at certain points in time. So, it is a compositive target of disinvestment, monetisation; everything together is the Rs 50,000 crore you see,” Somanthan said.

As per the Budget documents, the government has estimated it will get Rs 50,000 crore in 2024-25 in the form of 'Miscellaneous Capital Receipts', without mentioning the word disinvestment. However, the 2023-24 Budget, under the same 'Miscellaneous Capital Receipts' head totalling Rs 61,000 crore, pegged the disinvestment target for that year at Rs 51,000 crore.

In the 2024-25 Budget, the overall 'Miscellaneous Capital Receipts' head for the current financial year has been revised down to Rs 30,000 crore. So far in 2023-24, the Government has only managed to raise Rs 12,504 crore through disinvestment.

Edited excerpts:

We have seen a withdrawal of fiscal stimulus in this Budget. In terms of capex numbers, we have seen a very modest hike. In terms of allocation for flagship schemes, we have either seen no increase or a small one at best. Are you confident that in FY25, growth will be enough to take India forward?

I think the fiscal stimulus being withdrawn is a counter-cyclical necessity. In fact, the error that many economies have made is to inject a stimulus when it is necessary and then not withdraw it when it is no longer as necessary as it was. This means that you do not have the firepower for the next round of something that may happen. And things do happen from time to time. I think it is a matter of basic economic prudence to withdraw a stimulus when the conditions that led to the stimulus no longer exist -- i.e., a stimulus to the same degree. The stimulus was started at a time when growth was negative, not when we were talking of whether growth would be 6.5 percent or 7 percent. And I would say growth of 6.5 percent is not low. We live in a different world, where trade is constrained and geopolitical situations are difficult. A growth of 6.5 percent itself would be high, not low. To say that, would this be enough for growth? I think that with what we have presented in the Budget, I am very confident that we will achieve one of the world’s highest rates of growth. And I think what we have presented (in the budget) is sufficient for that. Should it (growth) be even higher? Of course, we would like it to be higher, but we also want to consolidate. So, we have prepared a judicious mix of fiscal impulse and fiscal consolidation, and we think this is the right balance for the times.

And it was not a modest increase in capital expenditure. I think it was a significant increase because we presented 11 percent plus increase on last year’s budget, with the (nominal) GDP having grown only 8.9 percent. So, this will be yet another year when, both as a share of the budget and as a share of GDP, capital expenditure is going up. And it is going up beyond a very high expansion in the previous three years.

The markets were expecting an over 15 percent increase in capex for FY25

I do not prepare budgets based on market expectations.

The growth in capex allocation is lower compared to last fiscal. There is a sense that you want the private sector to come forward

Without the private sector coming forward, we have achieved whatever growth rate we have achieved this year. We will continue to spend more next year than we have spent this year. Our total expenditure is going up next year, our capital expenditure is going up next year, not down. And, in real terms, capital expenditure is rising; in real terms, our budget is larger. Therefore, I do not think we are doing anything that will restrain growth to below what it was this year. What private capital expenditure can do is to increase that growth even further. But, with or without that entry of private capital expenditure, I think we have enough to sustain today’s growth rate.

Any estimates you are working with on private capex?

I would not hazard any guesses; it is for the private sector to make those decisions. We can incentivise, encourage, suggest. Ultimately, they have to make their own decisions because they have to profit or not profit from their own decisions. But I expect it (private capex) to be positive. We have a number of PLI schemes that are already operational, and we expect more of them to take off in the coming year. With or without those schemes, I envisage a lot of capital investment from the private sector. There is a mention in the Budget of about 1,000 aircraft being purchased; that is entirely the private sector. And, while the aircraft may be imported, there is a lot of associated capital investment that you need if you are going to use 1,000 extra aircraft in terms of ground handling, domestic equipment, and staff. It is happening — capital investment.

What is your outlook on consumption?

I am not looking at consumption per se. We are protecting the consumption of the poor, and we are doing enough to do that. Beyond that, it is for market forces to determine what consumption should be. The Government is not only focussed on consumption, but also savings because we need to do both. I do not have a view on whether consumption should increase by reducing savings, whether consumption should not increase, or whether savings should not increase. I do not have a view on that. I think the Government will take the steps necessary to protect the consumption of the poor and vulnerable, and that has been done.

We did not see an increase in the allocations for PM Kisan or MGNREGA. What was the thought process behind that?

MGNREGA is a demand-based scheme. PM Kisan is a scheme with universal coverage, so all the farmers who need to be covered are being covered, and they will continue to be covered. All funds have alternative uses and opportunity costs. We have deployed the funds in a way that we think is best for the economy.

Remember that this Budget has spoken repeatedly about making India a developed country by 2047. We are focussed on running that marathon. And running that marathon requires a fiscally fit India. Therefore, we have focussed on deploying fiscal resources optimally in the pursuit of that long-term goal of a Viksit Bharat by 2047.

Under your expenditure head, there is a Rs 70,000-crore allocation for new projects. What is that?

We had announced the new fund for research and innovation. The corpus of Rs 1 lakh crore is a multi-year proposal, so it is not that the Rs 1 lakh crore will be invested in the coming year. But the provision for that is part of that Rs 70,000 crore. We have also kept aside a sum of money to be given to capital investment departments that need it the most. We have not pre-allocated to railways, highways, telecom, power, defence, etc. So, this sum is available to be taken by those who have the greatest need for it. This is something that will be dynamically allocated during the year. If a department says they have more requirement, we will allocate from this amount. But it is operationally convenient to keep it with the Department of Economic Affairs rather than pre-allocating it to a particular demand, after which it becomes difficult to reallocate it to someone else. It is much more difficult to move money between ministers; rather, you keep it in the finance ministry and allocate it to whoever requires it.

You have pegged gross borrowing for FY25 at Rs 14.1 lakh crore, the expectations were of a Rs 15-15.5 lakh crore number. How have you come to this number?

Without getting into the exact numbers, the number is lower than perhaps what was expected because you may recall in the year 2021, the government came up with a way of maintaining GST compensation to the state governments despite the shortfall in cess collections. That involved the central government paying a large sum of money with the understanding and agreement of the GST Council that this would be paid to the states, and eventually those borrowings would be repaid from the GST compensation cess. The first round of redemptions is due in the coming year, and we intend to (do so), as per the arrangement that was agreed upon; those redemptions will happen from the GST compensation cess and not from the Consolidated Fund. And, in addition, we expect there to be more money in the fund than just to redeem these securities, so we may also look at advancing the settlement of those debts. But these are debts that were incurred for GST back-to-back loans. So those loans will not need to be repaid by fresh loans; they will be paid from the GST compensation cess.

With this Budget, what is the signal you are sending to the markets, to the RBI?

There is no intent to send any signal to the RBI or anyone else. The intent is to tell you what we intend to do, how we intend to spend our money, and how much money we intend to receive. Too much attention to signalling is sometimes a bad thing because we should focus on doing what we think is right. The content is the message. There is no intention to signal anything to anyone.

What are the key growth drivers that will drive the economy in FY25? We have seen subsidies also go down…

First of all, subsidies going down do not result in any negative impact on consumption in the economy. (Regarding) food subsidy, we are not changing the price of food. So, nobody is going to consume less food because the food subsidy is slightly lower. That reflects the fact that this year there are some arrear payments for old food subsidies, so it is not a reduction. Fertiliser subsidy: we are not changing the prices of any fertiliser. Subsidy changes reflect changes in the input cost of imported fertiliser. Again, that does not affect the domestic economy. So, some of these revenue expenditure changes have no negative impact on consumption in the economy.

Growth impulses — I think continuation of the government’s capital expenditure and continuation of at least current levels of private capital expenditure, are enough to sustain the present level of growth.

What is the disinvestment target?

There is no disinvestment target. This is a sort of conscious change where we now look at disinvestment as one element in a strategy for managing the government’s assets. In fact, the department is called the Department of Investment and Public Asset Management. These public assets, the government’s equity holdings in various enterprises, can be a source of capital receipts through disinvestments; they can be a source of dividends if we do not disinvest; and they can be a source of impetus to the economy through capital investment. And all these three purposes are important. Focussing on a particular disinvestment target -- the secretary of DIPAM has explained that he is of the view that having this target creates an expectation of a necessity to sell shares by some fixed, arbitrary financial year-end. And this actually affects the valuation of shares and does not give us the best value that we can get.

India’s disinvestment strategy has remained somewhat consistent from the time the market cap was Rs 50,000 crore to Rs 50 lakh crore now. So, one would think that the market conditions are ripe right now…

They are ripe right now because we did not disinvest for something like two years. The point is that we are looking at a more integrated strategy where decisions are not taken based on short-term fiscal priorities; they are taken based on maximising the value of our investment. And not based on having to fill some gap in the budget by having to dispose of certain shares at certain points in time. So, it is a compositive target of disinvestment, monetisation, everything together is the Rs 50,000 crore you see.

One would think the government is perhaps rethinking its strategy to offload stakes in PSUs…

I am not aware of any policy change; it is a change in emphasis; it is a change in the link between fiscal management and public asset management. The two used to be intertwined, that is, we used to rely on that as a source of financing our budget. We are now looking at that differently. We are saying, look, that is incidental, go and maximise the value of the asset. We are very happy to get dividends too. We do not want to look at only selling the cow, we are also happy to take the milk and sell it. It could be the dividends; it could be the asset. What is the best time to sell something should not depend on the budget strategy, it should depend on the conditions in the industry, the conditions in the market, and various other things. But it is a fact that we are de-emphasising disinvestment as a source of fiscal resources.

But it was not only as a source of fiscal resources; it was a broader direction you were giving out to the private sector…

Absolutely. And I think that is the more important dimension than fiscal resources. And that remains important. The government will continue to follow its outlined policy.

With the RBI action on Paytm, what kind of disruptions do you expect?

I am afraid that is not a subject I know enough about to say much. It is a regulatory action to which I have no great value to add.

The finance minister said that they are going to come back and present a big budget in July. This was a very fiscally prudent budget; it was nothing like anyone expected. Was that the vision with which you all started work, or did it require some backroom negotiations to come up with the financial statement?

Budgets are always made through a very deep process of dialogue between departments and different institutions. And this budget was no different.

So, the direction that let us stick to the script, let us stick to convention, did it come from anybody?
There was a clear political direction that we should stick to conventions.