Upcoming Budget to focus on housing, job creation: Lavasa

He further said that around Rs 25,000 crore have come from the governments divestment drive and the strategy on 'strategic divestment' will be operationalised soon.Below is the transcript of Ashok Lavasa’s interview to Shereen Bhan on CNBC-TV18. Q: Let me start by asking you about what you made of the commentary that has come in from the RBI and the Monetary Policy Committee (MPC)? Against expectations of at least a 25 basis point cut, the reserve bank has announced a status quo policy. The expectation from North Block was that there is enough room for a rate cut. Do you believe that this is going to disappoint the markets in the short-term? A: As far as the RBI is concerned, the RBI has taken a very studied stance and they have taken into account various factors which they think are transient in the economy and perhaps they have not been persuaded by the expectations that people had. Now, the range of expectations was quite clearly very different. People had a huge range of expectations about the rate cut. Also, some of the global trends, the rising oil prices and the fact that there is likely to be a change in the US government and the policies there might have also played a role in influencing the decision of the RBI. Q: You are talking about the external factors, but let me focus on the domestic factors and talk to you about what the RBI says as far as the domestic situation is concerned. The RBI says that manufacturing has slowed down both sequentially and on an annual basis with weak demand conditions. Also it says that gross fixed capital formation is contracted for the third consecutive quarter. The picture that is being painted and this is even prior to the full impact of demonetisation is that the economy does not seem to be in fine fettle. Do you believe that because of demonetisation, the pain is only going to be exacerbated, do you see that continuing through Q3 and Q4? A: If you look at the demonetisation that has taken place or the invalidation of the currency, whatever you might like to call it, the full assessment of its impact is yet to be made, we are 30 days into this process. And perhaps, one factor which is persuading everybody is the excess liquidity with the banks. What are the banks going to do with this liquidity? What will be the policy announcement from the bank which will accelerate the process of credit offtake? This was the single consideration that everybody had in mind. But this process has to be seen in varying perspectives. One is the short-term perspective which everybody is engaged with right now. And I do agree that the economy, as it stands, there is a requirement for giving demand push. Government from its own expenditure management point of view, has been providing that push in a big way. But, it was expected that the trend of reduction which was started in the last policy announcement, perhaps people thought that this is a trend which is likely to continue. And the demonetisation, gave a flip to such expectations. But I think that RBI, we do not understand the full logic of their decision, but from whatever statement has been released, they have not been overly persuaded by the temporary phenomena of demonetisation. Q: You were talking about the economy needing a demand push. Let me also ask you about what has transpired in parliament today with the government tabling the supplementary demand for grants of about Rs 35,000 crore. Now what should we expect then, in terms of the pump-priming which everyone is talking about or the stimulus from government expenditure that is being expected and anticipated ahead of the Budget and perhaps in the next Budget as well. A: In fact, if you look at the trend of expenditure this year, you will find that on the plan side for example which represents the development expenditure, we have already incurred 62 percent of the Budgeted estimates which is very good going in comparison to last year, because last year, at this point in time, we were less than 58 percent. The total increase in the planned spending is over Rs 70,000 crore. Similarly, on the non-planned expenditure side, we are pretty much the same level as we were, in terms of percentage, although there has been an increase in the non-planned expenditure on account of the impact of the Seventh Pay Commission. So in terms of expenditure till the end of October, overall the expenditure is 60 percent of the Budget estimate which is very healthy. And if you further analyse this expenditure, you will find that across various sectors, whether those sectors are rural development, social welfare, education, health, these are the sectors. Apart from infrastructure sectors like telecom, power, if these sectors, there has been a lot of spending including the road sector. So, government has been trying to push economic activity through incurring additional expenditure. The effort in which the supplementary has been presented is to continue that process. Wherever the sectors or the departments felt a greater need for enhancing the expenditure, we have tried and provided that supplementary budgetary allocation to them. And this has also been given keeping in view the buoyancy in the revenue which we have witnessed so far. If you look at either the tax receipts or the non-tax receipts, they are much better than last year. Especially if you look at the tax receipts, whether it is direct taxes or indirect taxes or the entire range of taxes have shown considerable increase over last year, the increase is of the order of 24 percent so far. So, this is what we kept in mind along with the demand of various ministries when we presented the supplementaries. Q: What kind of fiscal space will you have because there has been a lot of talk about this possibility of a bonanza coming in from the RBI, but if one goes by the comments that have come in from Mr Patel today, at least as of now, it does not seem to be as simple as extinguishing of liabilities and passing that on to the government by way of a dividend. So, in that scenario, what kind of fiscal space, what kind of fiscal cushion does the government enjoy? And I would also like to ask you about the Fiscal Responsibility and Budget Management (FRBM) Committee that was set up and this business of whether there should be some flexibility when it comes to the fiscal deficit target itself. Will that provide you some room, some space if the fiscal deficit target were to be more flexible and within a range? A: Let me make one thing very clear that the supplementary budgetary allocations, the revised estimates, all of them have been prepared keeping in view that income or the receipts which the government has budgeted and what we are expecting. So far, we have not taken into account any of the other factors that you just mentioned whether it is the FRBM report or it is the effect of the disclosure scheme or the effect of demonetisation because it is too early for anybody to exactly predict what the benefit to the government exchequer is going to be by this. So, whatever be that benefit will be kept in view when we plan any additional expenditure henceforth after the process has been completed and there is greater clarity on what will come to the government coffers what will go to the banks, all these factors are still to be ascertained. So as of now, the expenditure planning has been done keeping in view the budgetary estimates that were initially presented to the parliament and the performance on the revenue side, revenue receipt side so far. As far as the FRBM committee is concerned, yes there is a committee which is expected to furnish its reports very soon. They have had wide ranging consultations and they should be in the process of finalising their report and giving it to us. What is contained in the report will only be known after they have been given the report. So, the current year’s income, expenditure, fiscal deficit, revenue deficit, they are all not being affected by whatever may be the contents of that report. Q: Let me ask you about another possible fiscal cushion and that has to do with this business of strategic divestment because the Niti Aayog has put together a list of companies that they have shortlisted. There is Cabinet approval that has come in for the process of strategic divestment itself. Is this going to be a big play in Budget 2017? A: The revenues which were expected from disinvestment were of the order of Rs 56,000 crore. So far, I do not remember the exact number, but about Rs 25,000 crore have been already received or close to that number. The Department of Disinvestment have a roadmap, they have a plan on how to go about achieving the target which has been given to them. And this does constitute an important policy initiative of the government. It constitutes an important component of our Budget and there is a certain strategy which is being followed in consultation with the Niti Aayog which is being operationalised by the Department of Public Investment. So we are quite hopeful that what was projected in the Budget, we will reach pretty close to that. Q: So you believe that you could get close to that Rs 56,000 crore number as far as the disinvestment revenue is concerned? A: The reason why I am saying this is that what has been already achieved perhaps, is the highest ever at this point in time of the year. So, I have no reasons to doubt the ability of the disinvestment process. Q: You said that it is still early days and the full implication of demonetisation have not really been understood and the government is refraining from putting out some sort of estimate, but would it be fair to say that it could be beyond half a percent closer to 1-1.5 percent impact on gross domestic product (GDP). The RBI today has said 7.6 percent to 7.1 percent as far as a gross value added (GVA) is concerned. What are the broad estimates that the government is working with? A: So far government has not made an assessment of what exactly would be the impact and I am not even sure whether the entire 0.5 percent reduction which RBI has projected is on account of demonetisation that will be known once we study their paper which they will bring out and the minutes of the meeting, but yes you are right that RBI has revised the assessment from 7.6 percent to 7.1 percent. That having said there are many other factors in the economy which point to healthy trend of economic growth. Now how far these are sustained that time will tell, but the fact is that the economic activity temporarily appears to have suffered and there are lot of anecdotal evidence. There is firm analysis on which sector has affected how much, but if we go by the tax collections which are taking place especially of the excise tax, because excise represents manufacturing. The numbers so far that we have got do indicate that excise collections have not fallen, but there would be a temporary setback to some of the informal sector and there is of course attendant difficulty which people have had to face because of sucking out of so much of liquidity from the market. Q: Let me then ask you about the big economic event that everyone is watching out for and that has to do with the goods and services tax (GST). We don’t know whether there will be progress at the next meeting of the GST council slated for the December 11 and 12 or whether the bill itself will be passed in this session of parliament. What if the bill were not to go through in this session of parliament is April 1 then a dead timeline for the GST virtually? A: Well, the timeline is of April 1, 2017. There is another meeting slated end of this week and we are making an effort with the state governments to evolve a consensus. I think most of the issues have been resolved and whatever is remaining we should believe and hope that that also gets resolve so that we stick to this timeline. But one important thing which I would like to share with the viewers is that the whole process of demonetisation has also triggered a major evolution towards a digital economy. An economy in which transactions are done transparently and in a cashless mode. Now all that this is driving towards is greater compliance, so that whatever transactions take place in the economy they are visible, they are done in a mode which the system can capture and therefore whatever are the liabilities of citizens towards the state, those liabilities are transparently discharged. GST which hinges greatly on greater compliance with tax laws is a step in that direction and I think we should believe that the greater compliance of taxation laws by adhering to a method or a system which ensures that transactions are captured by the system that is the underlying principle which is behind the GST, because in the chain of transactions if there is one person which falls out of the chain then the GST would perhaps lose the purpose of providing the input credits that it is meant to do. Therefore, I think one of the factors which has not been enough understood so far and commented upon is this necessity for the society to become more compliant, which digital transactions will promote. Q: If the committee of secretaries that were setup to arrive at the formal classification of rates across different products and categories for the GST, whether that report has been finalised? A: They have more or less finalise a report whether the GST council approve that or not I am not very sure at this point in time, but the classification at the official level that exercise has been more or less complete. Q: My final question to you, we have got an early Budget on February 1 and this is now becoming, we thought that this would have been a goods and services tax (GST) Budget, but this is now becoming a demonetisation Budget. In that context, what should we realistically expect? Is this going to be a Budget that will pump-prime growth? Is this going to be a Budget that will try and continue to provide impetus to the infrastructure sector, low cost housing? What will be the broad pillars or themes as far as this Budget is concerned? A: The emphasis of the government which has been laid all along on providing greater employment opportunities, on focusing on low cost housing, which has been implemented through two major programmes. The fact that there is a major road building programme which is going on, the rural connectivity through the telecom network, the scholarship schemes which the government has announced. So, most of these schemes which lay emphasis on social inclusion, financial inclusion of the lower sections of the economy, all those schemes will continue with a greater emphasis on some of the core infrastructure sectors of connectivity, of renewable energy, of telecom services being provided to the rural areas, areas which have not yet been connected. All these things will continue. But, there is one more thing which I would like to emphasise and that is that this entire process of 50 days and the major focus which is now on shifting towards payments through the digital mode, that has to be understood in the major implication that it will have in the long run for the way we live, for the way we make our payments, for the way we enter into transactions while leading normal day to day life. And I want to give you instance. These are the two spectrums that are represented in this whole debate. For example, I was talking to a person who clears the roads in the place where we live. And he was telling me that now because his employer insists that he must produce a rent receipt where he lives as a proof of identity and verification. So, he says that in the building where I live, there are two or three similar buildings which are owned by somebody he does not know. There is somebody who comes and collects rents from 30-40 people who live there and these people are paying their rent regularly. Now, when he goes to the person who collects the rent and asks for a receipt, that person says that no, I do not want to give you a receipt. So, one spectrum is represented by an honest low paid employee who is making a transaction with cash, honest earning. And another end of the spectrum is represented by this person who is a faceless owner of these properties who is collecting thousands of rupees every month and who does not want to come on record. So, the whole emphasis that is being given to transactions which should be made through the digital mode will bring on record many of these parallel activities that are going on in our economy.