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Last Updated : Jan 25, 2018 08:57 PM IST | Source: CNBC-TV18

Would like to see increased spending on infra & agri-infra: Ashima Goyal, PMEAC

In an interview to CNBC-TV18's Latha Venkatesh, Ashima Goyal, Member, PMEAC, Samiran Chakraborty, Chief Economist, Citi, Deepali Bhargava, Economist, Credit Suisse and Sajjid Chinoy, Asia Economics, JPMorgan spoke about the upcoming Budget.

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In an interview to CNBC-TV18's Latha Venkatesh, Ashima Goyal, Member, PMEAC, Samiran Chakraborty, Chief Economist, Citi, Deepali Bhargava, Economist, Credit Suisse and Sajjid Chinoy, Asia Economics, JPMorgan spoke about the upcoming Budget.

Below is the verbatim transcript of the interview.

Q: Which is that one or two or three big numbers that you will watch out for?

Goyal: I will look at the composition of government expenditure. That is the most important. I would like to see a lot of spending on infrastructure and on agriculture also from the infrastructure point of view. I would also look at the revenue numbers because we are expecting some improvement in direct tax collection and also the GST numbers. So a lot of reforms have been undertaken. We would like to see a picture of that in this Budget. And rather than populism, a focus on infrastructure and productivity improvement through the compositional effects.

Q: Tax revenues for the current year itself, where do you stand?

Chakraborty: For FY18, the reason why you are possibly getting a wide variety of estimates on where the tax revenues could be is on the indirect tax side. The seasonality that we have witnessed in earlier years in excise tax collection in March, where the March number used to be almost double the February number, whether the same amount of seasonality is going to be seen in this year's GST collections or not is one open question.

The other open question is that whether the March GST collection will be accounted for in this year's Budget versus next year's Budget and the third open question is that almost 30 percent of unallocated IGST, how much will it be on March 31, because on a cash accounting system, that unallocated GST to some extent gets calculated as part of centre's revenue. So because of these uncertainties, it is becoming very difficult to predict a more clearer number on the indirect tax collection for FY18. For direct tax collection, things are relatively much better. We are tracking the expected run rate, in fact maybe doing a tad better than what we were.

So if we get some clarity on the indirect tax numbers then we would probably know for sure that whether we are going to meet that target or not. We are working with an assumption that apart from the Rs 13,000 crore shortfall which we would see because of the excise duty cut on petrol, diesel, we will probably see another Rs 15,000 crore shortfall coming out of GST. So that is the next shortfall that we are working with for FY18.

Q: You are working with a shortfall of 1 percent on indirect tax?

Chakraborty: No, much lower, 0.2 percent of GDP shortfall for indirect taxes.

Q: What are your numbers in terms of tax collections, direct and indirect for the current year? Do you expect GST collections and therefore, overall tax revenues to meet targets?

Bhargava: For the indirect tax collections, we have a zero percent 0 percent year on year growth in our revised estimates and we are expecting a pick up in the next year but overall assuming that indirect tax is about 0 percent, it does not grow at all compared to last year. We have a total receipt shortfall of about 0.9 trillion almost 1 trillion shortfall this year. So some part of it is obviously coming from indirect taxes because GST is going to be only for eight months and not nine months.

We are assuming the March Number does not come in, does not get accounted for in this year and we have already assumed that the unallocated IGST is going to the centre. So we have some bit of optimism already built into the numbers. So indirect taxes plus the shortfall that we are likely to see on the non-tax collection side should set you back by about approximately about 1 trillion.

On the direct tax, broadly agree with Samiran that direct taxes are doing pretty well. On the income tax, tax filings have increased, so you should see a robust 20 percent plus year on year growth. On corporate tax as well, we are pencilling around a 12-13 percent year on year growth. So no real big surprises there and we are even more optimistic for revenue for next year. We do not think receipts be so much of a concern next year.

Q: Let me come to the more credible expectations for next year. Since the consensus appears to be that tax revenues are going to be flat to maybe marginally lower, what can be a credible expectation for next year?

Chinoy: Few things I would look at. One is what is the nominal GDP estimation because the tax buoyancy is typically based on that. The CSO estimates this year to be 9.5. I think that will be slightly higher when the final out turn comes. We are looking closer to 10.3. Next year we expect both GDP growth to pick up and the GDP deflator to pick up.

So a number of 11.5 percent would seem quite credible. Now on that nominal GDP assumption, remember direct taxes this year will grow close to 15 percent both corporate and income on nominal GDP base of 10 percent. Now there are some one offs over there as well, but that is a buoyancy of 1.5. The government can legitimately say next year with growth picking up at least on the direct tax front buoyancy can be slightly higher. That is one positive.

The second is just the mechanical aspect that next year you will get 12 months GST revenue, this year you got 11 months. So that adds about Rs 50,000 crore or about close to 0.3 percent of GDP. So when looking at the buoyancy of indirect taxes, first take out Rs 50,000 crore to look at the underlying buoyancy. Now that is the key assumption here. We are being a little bit conservative. We are saying buoyancy will be accounting for the one off close to 1 maybe 1.1, anything higher than that may be a bit of a stretch. Those are the 3-4 numbers I would look at.

Q: I want you to quickly give me those three numbers. What are you nominal GDP expectations and therefore, which is that exact revenue growth    number that you will consider credible?

Chakraborty: We are working with a number of 11.5-12 percent on nominal GDP and on that basis, calling for about 12.9-13 percent growth in total revenue including the non-tax revenue. So for tax we are working with about 11.5 percent year on year growth which will translate into about 11.4 percent of GDP of total tax revenue.

Bhargava: For nominal we have 10.2 percent for this year and 11.5 percent for next year. Net tax revenue growth for this year is 9 percent and we are seeing a big jump of about 17 percent next year.

Q: I want a qualitative comment from you. Would a 13 percent tax revenue growth assumption be fine because I am getting a range from 13 percent to 17 percent revenue growth next year? What will make you call the tax revenue assumptions for the centre a good one?

Goyal: I think we should remember that we have gone through a lot of structural reforms this year and we see them fructifying in the next year. And also that global growth is going to be high and we are now in a position to take advantage of it. I would exports to rise and moreover whenever oil prices are a little higher and we do not expect them to go above this because there are many factors keeping them stable. Then are exports, oil as well as non-oil exports do much better.

So if you expect higher growth then your nominal GDP growth could be higher and therefore, tax revenue also since you would see that GST should settle down and deliver some improvements as well as following up with all the leads they got with demonetisation on direct tax, you have already seen a lot of buoyancy there. So I would believe that we could see, it would be closer to 15 percent, in the higher end of that band. And the last point I wanted to make was non-tax revenue because asset prices are very high. So it is a very good time to divest Air India. We could see a lot of movement there and a lot of revenue coming from those.

Q: What would be your assumption in terms of expenditure growth?

Chakraborty: At a very broad philosophical level, we have taken a call that this is too early for the government to turn populist in this year's Budget. So that is why we are expecting that the expenditure growth number would be a tad lower than the nominal GDP growth number. Yes, there are a bit of risks around how much of oil subsidy increase they will have to Budget for and to what extent there would have to be more money allocated for rural and infra. But even with reasonable assumptions, we think that it is possible to get around 10.5 percent of expenditure growth for next year which should be okay given that growth is already picking up and we do not really require a large dose of fiscal stimulus at this point.

Q: What is your deficit number expectation, both percentage and aggregate?

Chakraborty: We are getting into about 23 trillion plus only on total expenditure. So that should give us fiscal deficit of about 3.2 percent of GDP for next year vis-à-vis 3.5 percent for this year.

Q: What would be your expenditure number and more importantly, the two deficit numbers, percentage and aggregate?

Bhargava: We are working with 3.4 percent of GDP for this year and 3.2 percent for next year. So for next year, if we look at it, receipts are going to be higher by about 0.4 percent of GDP. The government will partly use this space to cut down on deficit and partly to increase expenditure. So, in our numbers we have a 3 percent slip in expenditure for this year and which gives you a 13 percent year on year growth for next year which roughly gets to about 23.5 trillion worth of overall spending next year.

Q: What would be the corresponding numbers for you, expenditure, growth and deficit numbers?

Chinoy: My sense is next year you will see higher expenditure more than nominal GDP. So on a base of 12 percent nominal GDP, I would expect expenditure growth to be more than 13-14 percent. In particular there would be much more capital expenditure because this year, given the actual out turn last year, capex budgeted is only going to grow at 6.7 percent and they will be cutting some of it in the next few months. So the actual growth rate this year could be closer to 5 percent.

On that base, the government will be very keen to boost capex. So our sense is as a percent of GDP, expenditure goes up between 0.1 and 0.2. The key is going to be how you budget subsidies because if you have much higher expenditures, but you have not fully allocated for subsidies with oil prices at USD 70 per barrel, that could be problem later in the year. Our deficit number this year is 3.4 percent, next year it is going to be 3.2.

Q: We have always struggled to get to 2 percent of GDP as our capex expenditure. Every year we fall short and get to 1.8 or 1.9 and it looks like that will be the trend in FY18 as well. What will qualify as a good Budget for you in terms of expenditure quality?

Goyal: As I said, infrastructure expenditure is important, but there also you can leverage on expected rise and through this EPC, they are doing some of this. So you can spend more and you can leverage private expenditures also. So you can give a bigger impulse to infrastructure spending. And that is also a good thing to do because non-tradable goods expenditure creates more internal demand as well as removes bottlenecks.

Q: And 3.2 is healthy you think because actually 3.2 is not achieving the target of 3. Okay for you?

Goyal: I think there has been some miscommunication here because this markets expect that path and therefore, 3 percent. The communication should be that given our expected growth and the comfort we have in terms of the relative, our growth rates are much higher than real interest rates. So we can achieve very healthy debt levels even with wider deficits. I think that communication should go to markets.
First Published on Jan 25, 2018 08:06 pm
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