India is well-placed in the global economic pecking order but faces headwinds of global uncertainties, says Jayant Sinha, the chairman of the parliamentary committee on finance. The MP underlines the necessity of supporting vulnerable sections of the population even at the cost of a higher fiscal deposit. In an interaction with Moneycontrol on December 19, the MP also spoke of striking a happy balance between growth and inflation going forward. Edited excerpts:
We have with us one of India's finest financial minds who understands policy and its intersection with markets, with finance, with economy, Jayant Sinha. He is also the chair of the parliamentary committee on finance and a member of Parliament. Mr Sinha, thank you so much for joining us. Let me begin by asking, is 2023 looking rather dull from an India point of view? Or do you think we're going to have our spot in the sun?
We are definitely going to be a bright spot in the global economy. And I think the next year for us is going to be a very exciting year on many counts, which I can get into. However, if you look at the global economy, it, of course, is dealing with two or three major upheavals, as you correctly pointed out. We still have the war in Ukraine going on. And that, of course, has resulted in a commodity price shock and, of course, real challenges to the global order.
In addition to that, the Fed (US Federal Reserve) and other central banks are going through a very abrupt tightening cycle. And now the view is pretty much that we're going to have a hard landing as a result of that in the global economy. And the third major factor is that China is still sorting out how it has to deal with COVID. And so the end game for them, as far as COVID is concerned, is still up in the air. So this makes it a very difficult and complicated backdrop for India. India, though, has done extraordinarily well in terms of all of our macroeconomic parameters.
Growth, going into next year, is very strong right now. We are somewhere between 6.5 percent and 7 percent this fiscal year. And next year, if it were not for these global issues, we would have done probably close to 7 percent if not more. But because of these global factors, that will be something that will have an effect on our growth. How much is it going to be? Nobody knows at this stage.
Nobody knows, that's true. We are dealing with a lot of uncertainty, but we're also going to be presenting our budget, the last one before the general elections. And you're chairing the committee that gives a lot of recommendations on what should be done. In your view, what should the priorities for the Indian government be? Macros are looking good, but we're not completely out of the woods. We are facing strong global headwinds. What do you think should be our priority?
Well, the honourable finance minister and the honourable prime minister have steered the ship really, really well through these very difficult times. So I think they just need to stay the course. There are three or four areas which they have prioritised and I think they should continue to do that. Number one, we have to continue to provide support to the vulnerable.
We've done that through the Pradhan Mantri Garib Kalyan Yojana, we've done that through the fertiliser subsidies, we've done that through big support for (rural employment scheme) NREGA and so on. Support for vulnerable populations of course has driven up our fiscal deficit, but is still required given the commodity price shock that I spoke about earlier. So that's number one priority.
The second important priority is continuing the reform measures and really putting in place a very forward-looking industrial policy. And that's coming through the PLI (production-linked incentive) scheme, that's coming through our commitment to climate change and what we're trying to do to green our economy.
The third area, of course, that the government has been emphasising correctly, is significant capital expenditure. Capital expenditure over the last year or two has gone up by 1 percentage or 2 percentage points of GDP, which is a substantial number. And that has meant that many sectors of the economy like construction, like steel, like cement have done extremely well because of the infrastructure spending that the government has done.
And then finally, what we've also tried to do through all of this is to ensure that we have a happy balance between growth and inflation, right? So it's macroeconomic management, looking at the currency, looking at the fiscal deficit, looking at, of course, where we are with respect to inflation. Here again, we have to stay the course. And of course, the finance minister just mentioned in Parliament that she's committed to the fiscal glide path, bringing deficits down to 3 percent to 4 percent over the next few years. So I think these are the four principal priorities that we have. We have really deftly and very, very competently managed all of this so far. And I think that's what we should continue to do in this budget. That being said, it is after all an election year, and I'm sure the prime minister and finance minister have a few very, very positive policies or programmes that they're thinking of for the people of our country.
So are you suggesting that this could be the budget where the government opens up its purse strings further to spread some cheer? They've taken care of people at the bottom of the pyramid, but the feel-good factor has been missing. Consumption has not really picked up. So are you suggesting that that could be on the cards?
I think we are certainly going to take some important policy decisions with respect to the feel-good side. Of course, that has to be done in a fiscally prudent way. The prime minister has spoken against the "revdi” (freebie) culture. So I'm sure it will be done in a way that is fiscally very prudent and is forward-looking, but at the same time really does help on the feel-good side. We have, of course, really created a turnaround in the economy. And certainly if you see our airports, if you see our hotels, if you see a lot of middle-class consumption, I think those numbers are trending in a very positive way. So I think a lot of feel-good has already happened. And I think we will sustain it and do even better, going forward.
In terms of tax reforms, the government has been proactive in reducing corporate tax rates. But when it comes to personal income tax rates, do we expect some simplification? Do we expect a revision there? Do we expect some tax breaks?
Well, there has been discussion in my committee as well. We've talked multiple times about creating a much more level playing field for capital gains. Obviously, we know that capital gains in the public markets are treated differently from the private market. So there has to be some equalisation there. So I think on capital gains, there is work to be done. On personal income taxes, of course, there is just the standard work you have to do in terms of inflation adjustment and so on. So that I think would also be a welcome set of revisions. That being said, we'll have to wait for the finance minister and the prime minister to see what decisions they make on personal income taxes.
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