Tax mop up growth target of 18% realistic: FinMin aide

Despite the slowdown in the economy and a downward revision in tax mop up target last year, the government is confident of achieving its target of 18 percent growth in tax collection in 2013-14.

In an exclusive interview to CNBC-TV18, Arvind Mayaram, Secretary, Department of Economic Affairs, said that the government's tax mop-up target for 2013-14 was not unrealistic and that economic growth revival will lead to higher investment and corporate earnings, which in turn will result in higher tax collection. Mayaram stressed that during 2012-13 at an average 5 percent GDP, tax buoyancy was 16.5 percent. So while government is targeting over 6 percent GDP growth in FY14, 18 percent growth in tax collection seems possible. Also read: Economic downturn temporary; will carry reforms ahead: PM
Mayaram's theory could hold true as media reports indicate that latest excise duty and service tax collections are set to cross revised Budget Estimate for 2012-13.
Mayaram further said that economy was turning corner and sentiments have picked up. Import of capital goods have improved indicating higher investment going forward. Government has received number of foreign direct investment proposals in last few months. The cabinet committee on investment is determined to improve the investment climate and sentiment, he said. He also indicated that government is currently doing an overall review of FDI policy and the foreign policy will soon see some significant changes.
While concerned about the widening current account deficit, Mayaram was hopeful that this year too foreign flows will be able to completely fund the deficit. While last year, the government struggled to meet disinvestment target, Mayaram hopes government to meet the target in next year without much of hiccups. He disagreed that government meeting disinvestment targets with help from Life Insurance Corporation. He stressed that LIC was not investing in public sector units at behest of the government but it was a pure commercial decision. Below is the verbatim transcript of the interview Q: Let me start by asking you about the Cabinet Committee on Economic Affairs (CCEA) meeting, which is suppose to happen today in sugar decontrol. Why is it getting deferred repeatedly? Is there some lack of unanimity in opinion otherwise this meeting should have been done and decisions taken a few weeks back?
A: I do not think there is any major difference of opinion in that sense but of course consultations are required to be done and consensus has to be built. In the end there are different interests that need to be kept in mind; interest of the consumer, interest of the farmer. Therefore, these are not very easy decisions, but I can assure you that there is no confusion as far as government is concerned. Q: The finance minister was speaking in Japan a couple of days back about the importance of foreign flows for the current account deficit. Do you have a sense of why even foreign direct investment (FDI) flows have been quite tepid over the last many months and quarters and whether you expect it to pickup in 2014, which is so crucial for bridging our yawning current account deficit?
A: I do believe that we are now turning the corner as far as FDI is concerned. We have seen in the recent past some very important FDI proposals, which have come and AirAsia is one of them, you have seen Ikea, which came, which was a high profile case. The sentiment is picking up. Actually because of the overall gloom in the global economic situation, the investors all over the world have been in a wait and watch mode, it is not just in India and therefore now that there is a much greater focus. US for instance, the US economy is also showing some green shoots, you are seeing there is a movement that is picking up. In India of course, in the last couple of months we have taken some very important decisions, the government has been on the move on many issues, which were of concern to the foreign investors. Retail has opened up, airline is opening up.
So, there are new areas, which have been opened up. More importantly I believe that the cabinet committee on investment is turning the sentiment in a big way as far as investment in the real economy is concerned and with the recent three months track record, projects of more than Rs 70,000 crore have been approved. There is certainly a movement towards investment in the real economy and this will be reflected in the FDI flows in the coming months. Q: Yesterday the Prime Minister as well hinted that there could be more liberalisation with regards to FDI norms coming. Could you outline what form and shape that may take and whether the first step would indeed be with regards to FDI in pension and insurance?
A: FDI in pension and insurance as you already know the bill is already with the parliament and we hope that the bills will be passed, at least the finance ministry has been pushing for it. However, there is an overall review, which has been undertaken by the department of industrial policy and promotion regarding the FDI policy per se. So, it is not simply in terms of caps but also in terms of making the policy more predictable, less discretionary if there are other conditionality that are seen as an impediment to review those conditionality and see to what extent these can be removed. So there is an overall review, which is taking place and the foreign investment policy is going to see some changes in the coming months. Q: As we speak this morning the rupee is at a four week low and that is the prime concern. What happens if flow slowdown even for the period of one month, what kind of impact does it have on India’s export figures, what kind of impact does it have on the currency. Are there any export promotion steps in place or even as some people have suggested that does the government have a plan in terms of introducing another tranche of India resurgent bond or something to that effect to keep the rupee afloat?
A: I do not see the reason to intervene because the range has been between 53/USD and 54/USD and it is holding within that range and this is a natural valuation, which is happening because the government or the Reserve Bank of India have no intention of intervening in the rupee market. So, we are not overtly concerned with these marginal ups and downs in the value of the rupee because this is a natural flow; sometimes there is a pressure for instance this is a beginning of the financial year and at the beginning of the financial year there is also a demand for payments that comes in. So, there are various factors, which determine what the value of the rupee would be.
However, as far as the current account deficit is concerned that is a matter of a concern to the Government of India and we are keeping a close watch on that. However, if you would see in the last year, the entire current account deficit has been fully financed by the capital flows and I do not see any reason for the capital flows to slowdown because there is no development that has taken place, which should indicate towards something of that nature. So, we are confident that the deficit will be fully met and the capital flows will continue on account of the strength of the economy and the reforms that are taking place.         
_PAGEBREAK_ Q: Is there some rethink going on, on the divestment programme because the examples of the last few which the government has brought to market has not been great, subscriptions have been lackluster, in many cases helped out by the Life Insurance Corporation (LIC). Will you rethink your strategy as we start off with a clean slate in the new fiscal year?
A: Let me correct one impression that perhaps seems to be gathering ground that the Life Insurance Corporation steps into help the stocks. This is incorrect. Life Insurance Corporation after all also needs instruments to invest in because they also hold very large funds and they have to invest them wisely and if they find that there is an opportunity in the stocks of the public sector undertaking, they take a commercial decision on that. It is not at the behest of the government that LIC steps in but LIC does have to invest and it would invest in the stocks in which it has confidence, I mean the board must have confidence in the stocks in which it is investing.
I would also like to bring out to your notice that even in the case of foreign investors there is a lot of interest in PSU shares. So, if the fundamentals of the shares are strong then LIC and other similar pension funds and life insurance companies are likely to invest in them. So, I do not see anything surprising about that.
As far as the divestment is concerned, if you look at the revised estimates, we have been very close to the revised estimates of the divestment returns that we were looking at and in the coming year there is a programme for divestment and that programme will rollout as per the schedule that the department of disinvestment is laying out. So, I do not see any reason for any skepticism on that count. Q: You spoke about bridging the fiscal deficit. So far earnings have been quite weak; the Q3 picture was not great. We are about to enter an earning season, which is expected to be not very special either. Do you worry that your estimate of tax collections for next year might be quite exaggerated and optimistic?
A: I think finance minister has given a very detailed response to this in his earlier interactions. If you look at last year where we were having a slow growth because now we are expecting it to be somewhere between 5 and 5.23 percent, the buoyancy in the taxes has been 16.5 percent.
Next year, it is nobody's case. The most pessimistic analysts are also not saying that next year’s economic growth is going to be 5.5 or 5.3 percent. Everyone expects it to be close to 6 percent, if not more. We expect it to be a little higher than 6 percent. So, if economic growth is going to be higher than 6 percent then expecting 18 percent growth in tax collections is not a very overtly optimistic figure that we have been giving to the analysts. Therefore, I do believe that we will fully meet our fiscal deficit figures.
The numbers in the Budget for the current year, which is current fiscal, have been very carefully calibrated. We have a lot of flexibility in there and as months go by you will see that as much as we have been able to keep to our word about fiscal deficit in the last fiscal, which is 5.2 percent, not 5.3 percent, which was stated goal. This year too we will surprise you with the fiscal deficit numbers. Q: Given the point you made though about growth probably trending closer to the 5 percent handle and the kind of figures we have been getting, auto sales are at decade lows, core sector growth showed a contraction for the first time in many months and years. Are you confident that just tax collection will help the government along in terms of current account deficit problem? That is one part of the problem of course. Are any other measures being considered in a manner of greater urgency or emergency given the kind of slippage we have seen on consumption and core trends?
A: You are still talking about the last fiscal; you are talking about the third quarter numbers. The fourth quarter numbers have not yet come in most cases. Therefore, the annual growth for 2012 is going to be more than 5 percent. Now we are talking about the growth in 2013-14 and when I am saying it is going to be more than 6 percent, it is for the current fiscal that I am speaking about.
There are already reports that there is now an off take in the capital goods, the imports of capital goods is picking up for instance on account of the fact that very large number of infrastructure projects are coming on stream. So, our prediction is not that the tax collections will go up on its own. It is going to go up because there are going to be higher investment and because of higher investment we expect there will be higher growth and if there is higher economic growth then we believe that the taxes would also be of higher numbers than what they have been in the last year. Q: With regard to the banking industry, now that the RBI has set down the modalities for fresh banking licenses, how soon will the committee be setup in order to choose who exactly is eligible and by when do you think the first banking license could be given out?
A: I think RBI is the one who would be looking at these. However, we expect that the licenses should be given somewhere by September-October of this year.