Minister of State for Finance Jayant Sinha spoke to CNBC-TV18 to discuss crucial issues including the Union Budget, gross domestic product (GDP) growth, investment cycle, goods and services tax (GST) and corporate tax.
The minister said India’s investment cycle is headed upwards and should play out over the next year or so. The government is hoping to roll out the GST from April 1, 2016 and the ideal rate for it will be the one which is revenue neutral. This would make everyone happy, added Sinha.
The finance ministry is also working towards bringing down the corporate tax to 25 percent rate and eliminating exemptions that make life difficult for corporate tax payers.
Below is the transcript of Jayant Sinha's interview with Shereen Bhan on CNBC-TV18.
Q: The last conversation that you and I had when we had seen an out-of-turn policy rate cut by the Reserve Bank of India (RBI), you said that the credit for the rate cut should have gone to the political leadership. Would you say that the credit for this rate cut should go to the political leadership as well?
A: Of course since the Budget just happened and we have had this out-of-cycle rate cut, you can clearly see how this is developing. The RBI and Dr Rajan have been very clear that as far as monetary policy is concerned, the cues are coming on the fiscal side, the external environment overall is very benign from an inflationary perspective.
Clearly, the external world is in the grip of deflation rather than inflation and around the world inflation is very low. Obviously, the oil price decline has also been very beneficial for India. So if you have to look at the data, the facts that the RBI is now assessing as it thinks about its monetary stance, I think all that data is more domestic than it is external.
As far as the domestic data is concerned, the big event has been the Budget and clarification on what the fiscal consolidation roadmap is. We had obviously said 4.1, 3.6 and then 3 percent and there was concern about can you achieve 4.1 and what is the quality of achieving that target and then thereafter what you are going to do with 3.6 and 3 percent. So now that all of that has been clarified, some of that uncertainty on the fiscal side has now been removed and that has created the space if you will for RBI to continue to bring rates down to a level that they think balances obviously the monetary stability side of the equation which what is required for the economy.
Q: How much more room there is for the RBI to bring down rates because the market expectation is that at least 75 bps, what is the expectation within north block and what do you think would be enough to spur the investment cycle because transmission hasn’t started, banks aren’t cutting rates just yet, what do you think is going to be enough to kick-start the investment cycle from an interest rate point of view?
A: As far as the investment cycle is concerned, what we have done in the Budget, the money that we have set aside for infrastructure, Rs 70,000 crore, have the ability to go out and issue these infrastructure tax free bonds.
The national investment trust - the Budget that the Railway Minister presented was also focused on investment and so, I think all these things that we have suggested, the work that we are trying to do with respect to the power sector and so on, I think all those things will contribute to public investment taking off. As public investment takes off and people are confident about economic prospects, we will crowd in the private investment as well. So I think the investment cycle is headed upwards and so all of this should play out over the next year or so.
Q: If there is speculation that this out-of-turn rate cut by the RBI has to do with the fact that there is a little understanding and a bit of give and take between the RBI and the finance ministry as far as the monetary policy agreement is concerned which is a pretty historic landmark agreement and the finance ministry seems to have accepted most of the recommendations of the Urjit Patel committee report, how much of this has to do with the fact that you seem to have taken that on board?
A: We have discussed many times before, the RBI is a very professional data driven organisation and I am not sure that is the data that they used when they think about where rates are going.
Q: By when will we have clarity on the infrastructure trust that you talked about in the Budget, by when will we have clarity on the infrastructure tax free bonds that you just talked about because while these are big ideas and we would like to see these ideas translate into public investment and which is what is giving people confidence that even if we have seen the fiscal deficit target slip, this money is going to be allocated towards investment and capex. But there is still concern that there isn’t enough clarity or at least timelines in place for when we are going to see the details as far as these things are concerned?
A: The Budget is a plan and it is a strategy and any plan and any strategy depends on the execution. So we are going to have to now put in place the follow-through and the execution imperatives associated with that.
As far as the tax amounts are concerned, that is demand driven. So we have a number of financing agencies like the national housing board (NHB), like the Indian Railway Finance Corporation (IRFC), NABARD etc. So they will have to think through what their capital raising strategies are, how much they want to get from the infrastructure tax free bonds and then as and when that emerges in terms of their requirements then those will happen.
With respect to the national investment trust, we have done quite a bit of work behind the scenes on pulling all of that together. The creation of every institution is gated by two-three very important things as it will be for the national investment trust as well.
Firstly, the governance structure, how it will be governed, what we want to do kind of the board level, what it is that will be done by the organisation itself and so on and how the governance will work and so on. So that is something that we are working through.
Secondly, it is extraordinarily important to see who are the people because they need to be independent professional organisations, who are the people that we can rely on in terms of their own experience and their ability to operate and in very important economic institutions such as so we are obviously gated by that.
Thirdly, the national investment trust is intended to move public investment forward to get projects moving as well. So we have to look and understand what these projects are, also understand those, we have a very good inventory of those whether it is the PMOs tracking mechanism, whether it is what the public investment board does, so we do take all these three factors into consideration because certain types of projects required a certain type of skill-set, it does require different types of government mechanism, so we have to solve these three together to be able to understand when and how this institution can get launched.
Q: But over the next few months, two months or four months?
A: Absolutely, in the near-term because it is important to get the investment cycle moving and if we don’t have the national investment trust working in this regard, it will obviously then not be able to get the investment cycle moving. So yes, we have done a lot of work behind the scenes, now it is time to actually get into the execution mode on this.
Q: One of the other critical things to focus on as far as execution and infrastructure is concerned is to be able to revamp public-private partnership (PPP), the finance minister spoke about that but the cabinet for now has decided to defer the decision to operationalise three P India which is the promise made by the Budget. Can you explain to us why is that and what kind of revamping of the public private agreement are we looking to add because if I was to take into consideration what the road minister for instance is doing as far as road agreements and road public private partnership projects are concerned where he has said that you need to delist these projects and hence the government will have to provide almost up to 40 percent equity, is that the model that we are going to be following as far as our infrastructure projects are concerned?
A: When it comes to PPP projects, we have inherited a whole host of projects that are right now stalled and in trouble and as we work through them, we begin to have a better understanding of what it will take first to get these stalled projects moving and secondly, if in fact we have to start new projects, how those new projects should put together?
So what we are learning now and which is reflected in the Budget language as well is that there is a need both to have new and fresh capital coming in which is a national investment trust and so on and also a new approach towards these PPP projects where perhaps those sovereign takes on more of the risk and so on. So because we are working through all of these right now as we are getting our hands very dirty in dealing with all of this, it makes sense to take a step back and to think through what is the right way to move these projects forward.
Q: When will we have clarity on what the reworked PPP model is likely to be?
A: Wait and watch, I think again as I said, it is very important to get the investment cycle moving, this is something that is of very high priority.
Q: But is it going to be specific for specific sectors or do you believe that there will be a model framework which will be sector agnostic?
A: I think part of what we have learnt is that the sectors have to be different because the issues in each sector are quite different. In some cases, we have fuel supply problems, in other cases we have land acquisition problems, in other cases we have financing issues.
Therefore, in each sector because of the nature of the sector so roads, there is almost always a land acquisition issue of some sort. In power we have had the fuel supply challenges and the rate agreements that have been quite challenging. So in each sector we find that it is a little bit different and therefore, I think that one size fits all type of templates is probably not going to be as effective as taking a more customised approach to it.
Q: You have set out a very ambitious target in the Budget as far as roads are concerned. The Prime Minister in Parliament said that you have gone up from about five kilometres a day now to ten kilometres a day. The Roads Minister set a target of 25 kilometres a day. It is an ambitious task but do you believe that without the requisite clearances as far as issues like land for instance are concerned or being able to get the private sector on board, these kinds of target are going to be realised?
A: Obviously the Land Acquisition Bill is very important in that regard but the transport minister has been very clear about his determination and is working very hard to ensure that many of these stalled projects are actually executed and get the attention that they deserve so I have a lot of confidence in fact and everything that we are hearing in the Finance Ministry is that these projects in fact are moving forward and that is exactly why in the Budget we have significantly increased the allocation as far as roads are concerned.
Q: You have also significantly increased the allocation towards the railways, how soon are we likely to see things move as far as railways are concerned. Several promises that the Railway Minister has made, bringing private players on board as far as station redevelopment is concerned; Of course FDI has not been talked about in the Budget, they have talked about multilateral agencies funding, they have talked a lot about partnering with governments and so on and so forth. Is FDI a bad word in that sense even though 100 percent has been allowed as far as railways are concerned but are we shying away from private FDI?
A: The Railway Minister has been very clear about his priorities. The Railways have been chronically starved of investments for quite a long period of time and as a result of that there is in fact a whole list of very high return projects that are available there in terms of getting going and being shovel ready and really moving forward very quickly and so the one lakh crore investment plan this year of which hopefully Rs 40,000 crore or so is coming from us is something that will move forward very quickly and there are different nuances there, there are different type of projects. Some of course are pro railways.
As the Railway Minister has said, when it comes to stations that is an area where there can be terrific public private partnership and he wants to do it in a very transparent and clear manner so, as far as railways are concerned we should be quite confident that it will move forward very quickly because they have been so starved of investment and the good news for all of us who are using the railways and all of us as citizens of this country is that a) it is going to really make the railway experience much nicer and b) that the economic and social returns from those projects are going to be very high with strong multiplier effects.
Q: In terms of out of the box revenue generating ideas, how big is something like land monetisation going to be as far as your government is concerned?
A: It depends on the sector. As far as railways are concerned clearly with stations being such a prime asset for them and in such crowded and congested and prime real estate areas, certainly for the railways the monetisation of the real estate is extraordinarily important but we have to think about real estate in a somewhat more out of box ways as well because the railway has right of way, it has significant land and on many important corridors and so on and so for them adding a second line and a third line on those corridors is eminently possible and so they will be able to leverage the land holding that they have, the real estate that they have to improve their functioning also quite dramatically. So, all of this really will add up because we are quite committed and determined to push forward on the investment side.
Q: As far as disinvestment is concerned, again a very ambitious target of almost Rs 70,000 crore and historically we have seen disinvestment is an area where targets have not been met by previous governments and your government as well. Let me ask you about strategic disinvestment because this is the first time your government has articulated a vision but not a policy yet as far as strategic disinvestment is concerned. You have also talked about divesting loss making public sector companies. What should we understand strategic disinvestment to mean? Should we even expect that for instance Air India would be up for a strategic disinvestment, that BSNL or MTNL would be candidates as far as strategic disinvestment is concerned? Is 51 percent going to be the threshold, what should we expect strategic disinvestment to mean?
A: What we imply with strategic disinvestment is the flexibility in our thinking about various approaches that we will take so, let’s wait and see exactly how the flexibility plays out.
Q: When you came to office you talked about a 100 smart cities in the previous Budget. This time around there is no number that has been given. I know some have been identified, both Greenfield as well as Brown field. Rs 6,000 core is not going to be enough from any point of view as far as funding the smart city project is concerned. Is there a hesitation now because our understanding is that things have not really come together as was the expectation of the government particularly for the smart city project?
A: As far as the smart city project is concerned, we are moving forward. We have signed a number of agreements with the United States of America. We have good clarity now on exactly how this is going to work but I do not think Rs 6,000 crore is really indicative of our commitment and our efforts in this regard.
There are many different ways of getting the smart cities off the ground. If you look at Gurgaon for example and you ask how much public money went into Gurgaon versus how artfully and how strategically was it developed on the private side. So, there are various ways in which you can get these kind of cities, these satellite towns and so on developed by making sure that the urban planning, the land use and everything else is done in an appropriate way so that it becomes self financing if indeed you manage it correctly.
Q: You have committed yourself to April 1 2016 timeline for GST, the first central sales tax (CST) compensation which in a sense will pave the way to getting the states on board of Rs 11,000 crore will be paid shortly. You will then go on to a second tranche of about Rs 15,000 crore and then a third tranche. Do you believe that in April 1 2016 timeline is a done deal or do you believe that there could be some slippage? I am not talking about 2016 becoming 2017 but the fact of the matter is that you will probably be able to take up the Constitutional Amendment Bill only after the summer recess of parliament. Given that do you believe that we will be ready for an April 1 2016 rollout?
A: As far as GST is concerned this is a very high priority for us as a government. We made very significant efforts to ensure that there is a consensus across both the center and the states to get it implemented. Based on the last set of discussions that we have had with the empowered group of finance ministers from the various states, I think that consensus has emerged and we now have all the different elements of that worked out.
We have a very broad based consensus there and that consensus extends across different parties. So, when we bring the Constitutional Amendment into the Parliament our hope very much is because of the consensus that we have forged, the good faith with which we have negotiated the GST, that we will in fact get the two thirds majority in the Lok Sabha and Rajya Sabha to pass it. Our hope is to be able to pass it in the Budget session itself because as I said it is something that has very broad consensus attached to it and therefore we should be able to move it through and get it done.
However, thereafter, what we have is a fairly complicated legislative process because we have to then get 50 percent of the states to clear it, then the GST Bill has to be passed in the Parliament which has a number contentious complicated issues attached to it and then that same bill has to be adopted by the state assembly’s as well.
Q: What about the rate because at this point in time the revenue neutral rate is being reworked or the hope is that it will be reworked and we will arrive at a more moderate rate than what was presented by the empowered committee. What would be an ideal GST rate, the global average is between 16 and 18 percent; that would be the hope for the GST rate in India. It is unlikely to be anything close to that; the rate for now is in excess of 24 percent in fact 25-26 percent. What would be the ideal GST rate as far as you are concerned?
A: The ideal GST rate is the one that is revenue neutral so that everybody is happy; that is the ideal rate that is what we are working towards.
Q: Won’t a 24-25 percent rate backfire?
A: You have to look at it in terms of what it does to the actual price of goods and services because right now the problem is that we have a very inefficient sort of cascading tax structure which means we have tax on tax. When we take out a lot of these taxes it is true that you pay for it at destination for sure but because you have eliminated a lot of taxes along the way and you avoided the cascading effect and so on ultimately in terms of the price that the consumer is paying we will have to see what that all ends up being but it could very well be quite reasonable.
Q: You have presented a roadmap to bring down corporate tax rates from 30 percent to 25 percent over four years. The hope is that you will stick to that plan but the bad news is that the Indian governments have very often not stuck to the plan and have faltered on both that targets as well as their achievements in terms of what they had laid out in the Budget and that concern's people because 4 year is a long time. The possibility of slipping on the commitment that you have made in the Budget, given the fact that at this point in time the economy is yet to revive, so your tax buoyancy is yet to kick in?
A: This is a government that is led by Prime Minister Narendra Modi who is a very determined person and somebody who is steadfast and very sure of himself in terms of making commitments and keeping to those commitments. I am very confident that we will in fact be able to get to that 25 percent rate and be able to eliminate those exemptions which make life so difficult for corporate tax payers. So we have set out a good roadmap, we have set a target. When the Prime Minister, the Finance Minister they set a target they are in fact quite good at achieving those targets.
Q: Irrespective of what happens as far as revenues are concerned and tax buoyancy is concerned, you will stick to that 4 year timeline?
A: We have said all along that our effort there is in fact to do it in a revenue neutral way so it becomes a question of how you stage it. Which exemptions do you take out and as you take those exemptions out how much more tax, rate reduction can you do. So we have to stage that as we go along. The goal is to get to an end point of 25 percent and a fairly clean tax structure with very few exemptions if any.
Q: There is criticism that not enough has happened in this Budget as far as Make in India is concerned or to be able to achieve that dream. There is 20 percent depreciation on the plant and machinery and may be you understated that in the Budget but do you believe that the target of 25 percent of GDP is achievable? We have missed it. We have been talking about it for over a decade now. Do you believe that this 25 percent share of manufacturing to GDP is really an achievable target over the next few years?
A: I agree that the target for Make in India is a challenging target and that is why we have to work hard against it. We should set an aspirational target and work towards it.
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