It is a challenging number, the reduction to 4.5, but it is feasible. It's difficult, but feasible

The second major concern was that in doing that, we wanted to be sure that we were fiscally prudent. In our neighbourhood, there are countries that have ended up with very serious problems because they have not been prudent in terms of their macroeconomic management. So prudent macroeconomic management was the second concern. There is a little bit of a tension between the first and the second—spending more is good for growth, but could be bad for macroeconomic stability. So this is a delicate balance we had to strike.

The third priority was that we wanted to put a special emphasis on leaving no one behind. And you see that reflected in several announcements, including the one for particularly vulnerable tribal groups, the one for prisoners languishing because they can't afford bail. There are a number of these interventions that are for those who would not be taken care of automatically by a thriving market economy.

Those are all very tough challenges to balance and to manage. In terms of shock absorbers, what has the budget done to build those shock absorbers in the economy?

See, there are limits to what you can do domestically in terms of shocks that emanate from abroad. If the shocks are minor, I think we are quite capable of absorbing them. But the other thing that I would say is that last year, we had some major exogenous shocks coming from outside because of the Ukraine war and its effect on petroleum prices, gas prices, fertiliser prices, food prices and on terms of trade. So it was a major disruption. The fact that we were able to withstand that and actually end the year with a fiscal deficit that remains within the targeted percentage indicates that we have matured as an economy and our macroeconomic management institutions have also matured, whether it's the Reserve Bank of India (RBI) and the other institutions, including the government. That gives me some confidence that we have the necessary policy, instruments and flexibility to be able to respond to the coming year. In terms of shock absorbers, no explicit shock absorbers that we have built. Our numbers are slightly conservative. We have not overestimated potential revenue and we have kept our estimates reasonable. So I think that is the best thing that we could do in terms of being conservative, rather than too optimistic.

Is our growing trade, current account deficit, a matter of concern? And how much does it bother you that India's trade with China, now the deficit has ballooned to $100 billion?

The current account deficit is, of course, a matter that is important in macroeconomic management, and it is high. It's not at the level that we would like it to be, no doubt about that. But India is a country that is dependent on imports for several key unavoidable commodities—oil and gas, certain kinds of fertilisers. Now, the share of oil and gas in our imports shot up last year because of what happened in Ukraine. So a part of the current account deficit is something that has resulted from a global change in terms of trade, particularly on energy and commodities, but I think that is reversing. That will probably be better next year. So I think the current account is likely to see some improvement from this year merely because oil prices are not going to be as high as they were. Now that's an assumption. If there is something else that happens and pushes them back up, then we will be back to where we were this year. But I think there is a good prospect of its improving.

In terms of imports from China, I wouldn't like to focus specifically on imports from any particular country. I think what we need to do is build domestic strength in manufacturing, but do so in a competitive way, where our products can compete with anyone. And that's where the programmes like the production-linked incentive schemes come in, to create the domestic environment for manufacturing that is cost-effective. And that's why the PLI programme is needed, because you need to create for many of these modern industries, you can't set up one factory in isolation. You need the component suppliers to be present near you, you need a whole ecosystem to be built. And that is where a modicum of government support in the early years, till scale is built, becomes important.

We have seen import tariffs being raised in the past, we've seen that happen this time as well. There are two theories to this, that either you're protecting our industry from imports but also hurting the industry that is very dependent on these imports to manufacture competitive products. What direction are we going on?

I think there is a little bit of truth in both. But I think on the second one, there is a mitigating factor that we do have arrangements whereby exporters can get relief on these import duties and not necessarily pay them. The argument that every increase in import duty will increase export costs is not necessarily valid, because there are drawbacks schemes, there are schemes where if you're buying for export, buying a component which goes into something that is exported, you don't necessarily have to pay the import duty.

And secondly, there are some compliance costs to these schemes. That is a cost on the exporter. So there is some truth in both of your arguments. But I think a certain level of protection is required in some of our industries in the genuine sense of an infant industry. I'm aware that sometimes infants don't grow up and, therefore, they need to be weaned from the bottle quickly. That part is well taken. But an infant does need some nutrition in the beginning.

Coming to the tension with China, would that translate into some kind of economic backlash?

Backlash by whom?

Okay, maybe backlash is too strong a term. But economically, are we going to see a pushback against China?

I don't want to comment on a particular country because I am an officer of the government and these are sensitive subjects. I'm not in the ministry of external affairs and I don't want to complicate their job by anything that I say. But I will say this, that in many of our choices, we are very conscious of the strategic aspects and we have made changes to the public procurement policy, which affects procurement from countries with whom we share a land border, we've made changes in our FDI (foreign direct investment) policy. Some of the trade arrangements that people think we could have got into but did not get into—all of these decisions are influenced by strategic considerations, and we will seek to improve our exports, we will seek to grow as an economy, but definitely we will not do anything that compromises on security, even if it means some economic cost is involved.

Many economists are praising the budget for being fiscally conservative. But a 4.5 percent fiscal deficit by 2025-26, that's a very aggressive target. How do you plan to accomplish it?

Well, I think you are now taking me beyond this year's budget. The first task is to accomplish this year's reduction of 0.5 percent. So you're like asking an eighth standard student what I'll do for my tenth standard marks! It is a challenging number, the reduction to 4.5, but it is feasible. It's difficult, but feasible…

I wouldn't want to comment on specifics for a variety of reasons, but it'll be a combination of revenue buoyancy, tight control on revenue expenditure, especially non-priority and non-scheme expenditure, and good growth in the GDP (gross domestic product). These three things are interlinked. So we have improved the composition of our public expenditure so that the denominator expands faster. And we'll exercise tight control on revenue expenditure.

I remember our last conversation when you shared with me details about how expenditure was cut across different ministries that was considered not productively being ploughed back into the economy. Is there a plan like that?

That's an ongoing effort, that continues. We are pretty tight in terms of managing anything that is not schematic or not development-related. And also within the schemes, we are also ensuring that there is no parking of funds idly anywhere, because that's how we reduce our interest costs. We don't want to borrow and then park the money somewhere when it's not ready to be spent. So we're moving quite decisively towards just-in-time release. And this means that this has helped us in terms of minimizing borrowing.

Any specific schemes?

Actually, across the board, we have a new system called the SNA system, which is the Single Nodal Account System for all centrally-sponsored schemes that go through state governments. Every scheme has a single nodal account in each state. So let's take a particular scheme. Let's call it the PM Awas Yojana. So if there is a PM Awas Yojana, there is one account with each state government for the scheme. We release money electronically to that account. The state's counterpart share is also released electronically to the same account within a certain period. No money can be released from that account except for that scheme. It cannot be used to pay some other cost of anyone else…

And we have complete visibility electronically on our dashboard of how much money is sitting in each of these schemes in each of the states.

When was this implemented?

It started about a year-and-a-half ago, and it's almost completely implemented this financial year…

The money that sits in that account is visible to us and we don't make the next release until it is substantially used, not 100 percent, but we expect 75 percent utilisation before the next instalment is received. And the interest on that account is shared between the Centre and states. What this does is that the money can't be held invisibly for some unknown purpose or can't be diverted from the scheme for which it was released to something else. So this is a major tightening that we have done and this helps us with our borrowing costs.

In terms of your non-tax revenues, they're budgeted to rise to Rs 3.2 lakh crore next fiscal from Rs 2.62 lakh crore this fiscal. What are the assumptions you're working with here?

Higher dividends mainly? A lot of our PSUs (public sector undertakings) are doing better and we are expecting better dividends next year. Mainly it's that.

On the revenue expenditure front, there are some who say that the target that you've set might be on the conservative side and you could overshoot that, considering this is also going to be an election year, if you're facing global headwinds. Have you factored that in?

I have not factored anything that is not announced or known. So I'm not aware of any such thing. I mean, whatever is known is factored in. So whatever is not known, obviously can't be factored in. But there's nothing that I know of that is not factored in… In terms of the revenue expenditure being projected? Well, I would say that our fertiliser subsidy estimates are pretty realistic. They're 20 percent lower than this year. But that's already reflected in global fertiliser and gas prices. In fact, the reduction is more than 20 percent. What you see today is more than 20 percent below the average for the last year. We have only projected a 20 percent cut. Food subsidy cut, I think, is very realistic given the present policy.

How about the outgo on pension?

We've taken the hit this year on the OROP (one rank, one pension, the scheme for retired armed forces personnel), which is a Rs 30,000-crore hit. That has been built into this year's revised estimate. So the pension bill is rising, it will rising next year as well. We've accounted for that.

A lot of states are now going back to the old pension scheme. From a fiscal point of view, how worrying is it?

That is a policy decision of the (respective) state government that I don't wish to comment on. Each state is entitled to take these decisions. But it has definitely got adverse consequences in the long run. And they're not merely adverse, they're substantially adverse in the sense that the burden of these are… basically, the move is from a funded, defined contribution system to an unfunded, defined benefit system…

I'm not aware of practical examples where a person's pension increases not merely for inflation but for what his successor generation of officers gets as a salary. So you will get somebody whose pension would be 300 percent of their last salary. That is a feature of the Indian old pension system, which accrued through judicial pronouncements, administrative orders after the 1980s. And that has made it an extremely expensive system. And that is a system returning to which has very serious fiscal costs. I admit that there may be some concerns with staff about the new pension scheme, but the solution I do not believe is fiscally sustainable if it is a return to the old pension scheme…

It will also mean a transfer from the general public to government servants in terms of whatever budget is available. It will either mean a tax increase or it will mean a shifting of resource allocations towards salaries and away from other education.

This year, internal and extra budgetary resources also make a comeback…

No.

Off-budget borrowings?

No, no. Zero…

I repeat on record, there is no off-budget borrowing this year, which will be serviced by the government of India. Not at all. It's not there…

What you see as IEBR (internal and external budgetary resource) is, let's say ONGC borrows from the market to spend on capital. We reflect that in our books as part of public capital expenditure for information purposes, which is repayable by ONGC, not by the government. We have no off-budget borrowings this year. Definitely not.

That's heartening to hear. Okay. Moving on, you have also assumed a 10 percent growth in your import duty collections. But the rates haven't changed much. What's driving this assumption?

Nominal growth, inflation. It happens. I mean, if the economy grows at 6 percent and inflation at 4 percent, customs duty will typically increase by 10 percent.

Also, the budget estimate for your windfall tax collection was Rs 90,000 crore, which was revised to Rs 1,50,000 crore. And now for the next fiscal, you have budgeted Rs 1,80,000 crore. What's behind this assumption? What are the components that you are looking at?

See, the excise duty would be constant because there's a specific duty. The windfall tax assumptions are based on petroleum prices. At certain prices, we collect certain amounts. So making an assumption of where it will be, the excise department has projected that. That's not a great source of additional revenue, because some of that revenue would have come to us anyway as profit share if it wasn't an excise duty. So we have a profit-sharing arrangement in many of the petroleum contracts. If they make profits, they share a percentage with the government. If it's an excise duty, we collect 100 percent of it. If it was a profit share, we might have collected 50 percent of it. So a part of that (Rs) 180 //lakh crore/ -/) would have come anyway as profit share. It would have been less… I'm afraid I haven't checked this and I will not swear to these figures.

In terms of your non-tax collections, what are you banking on? Is there a spectrum auction that you're looking at?

The non-tax revenues—the increase is primarily on account of dividends, the rest are fairly steady. There are licence fees and a number of other revenues.

Dividends?

Yes.

I want to talk about a big story that's happening in corporate India. What's happening with the Adani Group? Does it worry you that this might dent India's impression on the world stage? That it might raise questions on governance?

I don't think so. I think individual companies running into market disturbances is a common occurrence across markets. There's this wonderful company called FTX, which collapsed recently in the United States. I'm not making the comparison here, because that was a sort of crypto bubble. We are dealing with a different situation here. What I'm trying to say is, market situations happen globally. So to say that this is an India situation is something that I find a bit odd.

I will not comment on the specifics of this particular case. It's a private sector company. That company and its investors and the regulators will deal with whatever issues are there. That's not something of relevance to the government. The only reason I brought up the FTX issue is because you said, "Does this affect India as a destination?" Well, if it affects India as a destination, then I'm afraid the United States is a very tarnished destination as of today, because similar events happened. So I don't think this has anything to do with India as an investment destination. Point number two, I don't want to comment on the fortunes of any individual company. I really have nothing much to say about that. But it doesn't affect India as a destination. Definitely not.

But in terms of our Indian financial institutions' exposure to the Adani Group, has that…

That's a fair question. But I would say that the information I have—I have not studied it in any great close detail—but is that the exposures are very small in terms of the aggregate percentages of the holdings of our public financial institutions. So I'm categorical that there is no adverse impact on depositors or policyholders. Absolutely not. I think the holdings in any one entity are very small relative to the overall size of the portfolios of these institutions.

My last question is on disinvestment and asset monetisation. There's a lot of talk about why it was not featured as prominently in the budget speech and there's a sense that maybe the government might be slowing down on their divestment agenda...

I don't think there is any perceptible slowdown. In the case of the companies that have already been slated for disinvestment, the process is continuing. No new cases involving legislation have come up. So the ones that are in process are in process. IDBI has recently received good expressions of interest, so they will go forward.

And in terms of privatization of banks that was announced?

That requires legislation. It's not part of the legislation programme as far as I know.

Thank you very much for your time.

Thank you.