Hopeful of getting GST Bill passed in winter session: Sinha

The government would try to ensure that the GST rate keeps India competitive. The government will have to strike a balance between cutting tax soaps and cutting corporate tax rate, stating that industry is free t come and express their concerns to the government. Below is the transcript of Jayant Sinha’s interview with Shereen Bhan on CNBC-TV18. Q: Let me start by asking you about the single most awaited decision that everyone in the market is keenly looking out for and that is to do with the goods and services tax (GST). We have got the winter session of parliament starting on the 26th. All indications seem to suggest that perhaps in comparison to the previous session, there is more hope that the GST bill would get through this time around. The congress party had demanded an 18 percent rate. I know you will not comment on whether it is going to be an 18 percent or not, but indications seem to suggest that the government is batting for a low reasonable GST rate. Do you feel confident about the GST. A: Of course you are right. GST is front and centre in our economic agenda right now. Our sense is that we should have a quite an opportunity this time to hopefully get GST passed. Since the monsoon session, when we tried our best to get the GST passed, we have had a lot more time to prepare, work with our colleagues from the opposition, understand what their concerns are, continue to build consensus with states, continue to work with the GST council. So, we have been working on all these different dimensions to really put together what we think will be an acceptable package for our colleagues and opposition. Q: You think the opposition specifically, the congress party really, is on board now with the possibility as far as the one percent manufacturing tax is concerned and also an alignment on the GST rate wit what the congress is hoping for. A: We want to forge a consensus on this. This is a revolution on indirect taxes in India. It will be just an extraordinary boost to the economy and make life much simpler for our business people and for the people in trade and distribution as well. So, it really does require a durable national consensus to get it implemented and so that is what we have been working towards. Obviously, there have been some contentious issues, the one percent tax has been a contentious issue, how disputes get resolved is a contentious issue and obviously the rate structure and the rates themselves have been matters that people have been talking about. So, we hope that we have now done all the homework that is necessary to build that durable national consensus and convince everyone. Q: Including the state of Tamil Nadu? A: To convince everyone to the extent possible that this is in the best interest of all of India. Q: Including the state of Tamil Nadu? A: Consultations are on with all stakeholders. Q: As far as the GST is concerned, at this point in time would it be fair to assume that the government is keen on a low rate of tax which could perhaps be 18 percent or lower is what we are given to understand. A: Honourable Finance Minister has spoken about this many times. All of us want the economy to do well. We want tax rates that are reasonable, that are competitive, that are in line with global benchmarks, so we trying to ensure that we have a rate that keeps us competitive, we have a rate that will work for all of our business people and our consumers, so let us see what eventually transpires. Q: April 1, 2016, still feasible do you believe if it goes through in the winter session? A: I am an eternal optimist. I will continue to hope that that will be possible. So, let us see as and when the legislation gets passed here as far as the constitutional amendment is concerned. Then it has to go to 50 percent of the states and then we have to pass the GST bill itself, and that also has to be passed by the state. So, the legislative calendar is very challenging. At this stage, we will try our best, but it is a challenging legislative calendar. As far as the implementation work is concerned, the GST network, getting the field formations ready, doing the work in terms of actually getting the GST council ready to take this on as a responsibility. All of that work has been underway, all the preparations are in place. So, on the implementation side, we are quite confident, the legislative side of course is the one where the calendar becomes challenging. Q: And you hope that you will at least make the first move as far as the winter session is concerned, but since we are talking about taxes, let me talk to you about what the Central Board Of Direct Taxation (CBDT) has put out in terms of the roadmap of phasing out exemptions. While the roadmap of phasing out exemptions has been clarified by the CBDT as much as possible at this point in time, because it is still a draft, it has not clarified on how much we will finally start to see the corporate tax rate reduce. The finance minister has spoken about the aim to bring down corporate taxes by about 1 percent starting from the next budget. Is that what we should assume? A: There is a balance here that we have to strike. Obviously, we have to bring down the exemptions as much as possible and as we bring down the exemptions, we also provide relief on the corporate tax side, so we are doing that, that is one part of the story. The other part of the story, of course, is that it has to enable us to meet our fiscal consolidation targets which are also quite challenging, because we have said 3.94 percent this year, but then 3.5 percent the following year and 3 percent thereafter. So, we have our fiscal consolidation roadmap, so we have to strike this balance between bringing down corporate tax rates, removing these exemptions while at the same time, ensuring that we are able to do the revenue collection we need to ensure that our fiscal deficit is in line. Q: Just to take that point forward, and there has been criticism from industry specifically from the pharmaceutical industry, from the auto industry, that why are you tinkering with exemptions as far as research and development (R&D) is concerned, because especially it is aligned to Make in India, Innovate in India and so on and so forth. Could there be perhaps a rethink as far as those specific exemptions are concerned? A: I watched your show last night with Kiran Mazumdar-Shaw, Chairperson and Managing Director, Biocon and you were saying on your show that I hope you are watching. I was. And of course we take all of that input very seriously and this is an invitation for Kiran and folks in the automotive industry, to come and tell us what they think is the right way to do it. And that is precisely why we put this out. We signalled this in the budget, we have been talking about it for almost a year now, we have now put forward a roadmap, we hope that when all of this is taken into account, that there are not any losers. That it is winners all the way. Right now it seems to me that the pharmaceutical industry and the automotive industry feel like they will be losers in this. So we need to understand exactly where their pain points are, what their issues are, what can we do to make it work. Q: So you are open to that? A: Kiran is exactly right. We are open to thoughtful and good suggestions at any point from anyone. We are always open. That is not the issue. The issue is, how do we find this glide path; how do we find a way to ensure that as Kiran was saying last night, that we can innovate in India, we can make in India while at the same time bringing down the exemptions. You should know, and I think all of the business knows, and we hear this from them all the time, that all these exemptions result in a lot of litigation and a lot of confusion, our tax authorities get confused sometimes, they are not sure sometimes, on the business side it raises complexity. So we want to dramatically simplify. We think those simplifications, making it really straight forward to understand what your taxes are, will be a big boost to business. So we hope there will be winners all around. Now if along the way there are some losers because of some specific situations in specific industries, obviously we would want to sit down with them and that the whole point of the consultation, to recognize where it is that it is being counterproductive, if at all. So open invitation to Kiran and everyone else. Please come and see us. Q: Let me ask you about the fiscal challenges that you spoke of and I ask you this in the context of the recommendations made by the 7th pay commission. It will not impact the fisc in this year but it is going to have an impact as far as next year is concerned. 0.65 percent of GDP as per the recommendations of the 7th pay commission. There are concerns as you probably have seen the reports from Fitch and several others stating  that they don't believe the fiscal deficit target for the next year will be met on account of these pressures, how would you respond to that?A: People are talking about it as the trilemma, which is on one hand you have the pay commission coming in, on the other hand you want to step up public investment particularly in hard assets and then ofcourse you have the fiscal deficit. So, how do you kind of  reconcile these three conflicting targets. Obviously that is really what you pay us for, that is why we do  what we do. We have been spending a lot of  time working through all the different scenarios, looking at all the different parameters, doing a medium term fiscal planning to ensure that we can actually  manage all of these different things. It is certainly challenging, obviously we are going to have to be very careful about how we do our fiscal management, we think we can pull it off, at least that's what our analysis is showing right now.Q: Will expenditure cuts mean the way forward as far as pulling it off is concerned?A: That is too simple minded. It is not only about expenditure cuts, there are a variety of things. We believe that if we can get GST passed, GST will help us as far as the tax buoyancy and the tax revenues are concerned. We think simplifications in the corporate tax code will help us as well. So, there are a variety of factors that we are taking into account. We are also hoping that the economy will certainly be picking up, already we are starting  to see the signs as far as consumption is concerned. You have seen that in a variety of indicators whether it is electricity production, petrol and diesel usage, commercial vehicles, passenger vehicles all of these numbers are starting to trend very positive. Investment on the public side continues to get stepped up, we made a number of big announcements when it comes to example the locomotive factories, on defence side, FDI of course continues to flow in. So, for all of those reasons we think growth is going to be strong and therefore the tax buoyancy that you get when tax revenues go up faster than GDP growth is something that we will begin to hope, to see the benefit of next fiscal year as well.         Q: You are betting on the recovery really picking up as far as the economy is concerned but I ask you this in the context of the fact that trouble continues to be extremely gradual at this point in time. Private investment hasn’t picked up, even consumption at this point in time is patchy. There are concerns that what you have done as far as imposing the Swachh Bharat Cess on service tax is going to further crimp on the consumers ability to be able to spend, it is going to further crimp on discretionary spending. How would you respond to that criticism and do you really believe that the kind of growth estimates and the growth targets that you had held out hold today because that doesn't seem to be the consensus on the street?A: The growth targets are going to come through because we are seeing the  indicators of economic activity, we are seeing the strength in consumption, we are seeing the public investment, remember there is a lag effect to some extent. When you look at earnings and you look at profits or even when you look at direct taxes, you are really looking at a lagging indicator.We are paying a lot of attention to  leading indicators. As I said we are looking at electricity production, fuel usage, indirect tax collections which are up strongly as well, these are leading indicators.    Q: That is largely on account of excise. Stripped of excise it is 11 percent.A: No, that is not true. It is actually quite strong  given the fact that inflation has come down as much as it has and this is more on the WPI side because we are looking at indirect taxes in many of these categories. So, it is actually quite strong when you look at indirect tax collections and these are leading indicators. So, certainly we see the economy picking up.As far as Swachh Bharat is concerned, we have to understand that with Swachh Bharat we are going to make a difference in the lives of people who are really in dire need of sanitation. This is money that is being collected from us, actually  our overall tax burden in India if you look at it our total tax collection 15-16 percent of GDP, China is at 25 percent, Indonesia is higher than us, OECD average is 35 percent. So, that money is going directly to build community toilets, to build toilets, to deal with sanitation.Q: Into the Swachh Bharat Kosh?A: Absolutely. It is totally money that is going in with a direct line of sight, we have accountability around it and it is going to make a big difference to people.Q: This is criticism - I had Sitarama Yechury on my show yesterday saying that we hope that what the government is collecting by way of the Swachh Bharat Cess is not going to be used to powder the fiscal deficit next year? How would you respond to those concerns? We have seen this consolidated fund of India sort of being this big black hole that sucks up all kind of things?A: It is completely transparent. You come with me, I will come take you through all of the details through the Budget. Every rupee is accounted for. There is no black hole. It is your money, you are paying for all of this, all of you are citizens.What I will say is that at some level if you want to be kind of humorous about it, all money is fungible. So, you can say why is this money going here or there, that is true. However the reality is, the benefit of having this is, we thought long and hard about it and we concluded a Cess is a better way to do it.If you look at what has happened with the road Cess and going into national highways, that line of sight has created direct accountability on roads and made a huge difference there. Sarva Shiksha Abhiyan, line of sight on education, goes straight into the HRD ministry, schools get built. Similarly sanitation is one of those very compelling public needs where we want to make sure that this money line of sight goes directly into urban development, for community toilets and toilets in slums and other areas that deprived. Similarly it goes into drinking water and sanitation on the rural side to build toilets over there. We have tremendous accountability around that. We are working with each of these two ministries. In fact you can go up on their website and see month by month how many toilets are getting built.Q: Let me move on and talk to you about out of the box revenue raising ideas because as you said cutting down expenditure is perhaps the simplistic way of approaching the problem that you are faced with on the  fiscal front. What out of the box ideas can we now see? I am hearing a lot of talk about further sops as far as reviving the housing sector, so maybe we could see some sops specifically for housing and the government has plan of housing for all by 2019. Could we see something on that front, could we see innovative ways of trying to maximise  the revenue that you could get from IDBI Bank as opposed to a regular disinvestment process that the government is currently thinking of, what could be those out of the box revenue generating ideas?A: If you look at out of the box revenue generating ideas certainly disinvestment has an important role to play there. We have a whole host of public enterprises, obviously some of them have been hit hard by what we are seeing as far as commodities are concerned, metals are concerned. So, we will obviously go slow there till we get a good valuation that all of us as citizens will be happy about. However there are many other sectors that we could consider, certainly IDBI is an opportunity for us to do transformation just like we have done with Axis Bank.Q: Is that the route that you are considering, could you look at perhaps  some other alternatives as far as IDBI Bank is concerned? I am hearing from people in the market that spectrum is a scarce resource, people want a banking licence, may be this could be the opportunity for the government to look at this banking licence route.A: There are many revenue sources and like I said obviously strategic disinvestment is a place which we can look at, disinvestment in general we can look at in terms of other public enterprises, we have a host of enterprises that are loss making where there is already agreement.... (Interrupted)Q: We haven’t seen any move on strategic sales yet?A: We are moving through that. They have to go through a particular process. You have to remember that after the UPA government decided not to do any strategic  disinvestment the whole process by which strategic disinvestment was happening which means transfer of control had completely atrophied. So, we have to go back and resurrect those processes.Q: Would we see some in this fiscal?      A: Let us see. We are getting the process restarted and so let us see what we can do there. Strategic disinvestment is certainly an opportunity. Obviously we have natural resources including spectrum where we have an opportunity to do more. Then finally I would say that there are still certain assets that we have whether it is hotels and others that we could consider.Q: There has been no movement on that and I ask you this because the minister-in-charge has said that why should we actually look at divesting the hotels, why do we not look management contracts? There has been back and forth on this matter. This was part of the budget announcements that finance minister made virtually 12 months ago.A: You have to understand how government works, which is that unless everything is completed, and the process is fully done, we cannot really talk about it in public. So there is a process that is underway, there are consultations that are underway on many of these different assets and we are working through them to see what is the fair and appropriate manner in which we can work through these assets. So that is really the process that is underway. Just because we are not talking about it does not mean that we are not working on it.Q: Can we see that happen in this fiscal year?A: Let us wait and see. As I said there are many factors we have to take into consideration before you actually engage in a transaction. So when and how the transaction happens, I am not obviously prepared to discuss that, but obviously we are looking at all of these opportunities.Q: If I could also ask you about the opportunity to try and resolve the legacy tax issues, and I ask you this about Vodafone and Cairn and so on and so forth. At least as far as Vodafone is concerned, we understand now that the company has reached out once again to restart the process of conciliation, even though arbitration is currently underway, in the Cairn matter I believe that there could be a change as far as the arbitrator itself is concerned, I am not sure if that has happened or not at this point in time, but what could be this conciliation? Because the last time around when this process had started, we were told there can be no conciliation under the Indian Income Tax Act. So what kind of conciliation could we be looking at?A: Well you will have to see exactly how the offer is put together, so it is premature to talk about what the legal mechanism will be under which we resolve this. In any negotiation, there are multiple tracks, there are multiple ways in which matters can get resolved. So first we have to make sure that we can achieve some common ground. Once we achieve some common ground. Once we achieve some common ground and we are in a place where it becomes possible to close a negotiation, then we can begin to start to see what is the legal framework under which we can achieve this reconciliation. So let us wait and see. Again as I said earlier, you have to understand whether it is in the private sector or in the public sector. There is a certain amount of time and preparation and consultation that is required. Once it is done then obviously we can talk about it. But till then, we want to make sure that we are doing it in a thorough, deliberate and methodical manner.Q: But will this be specific only to Vodafone or will it then apply to other such cases?A: Again we have to look at what the underlying principles are. I think both Cain and Vodafone are specifically unique that we will have to look at them as they are, but we are obviously also looking at litigation across the board. We are really trying to simplify; as I said our exemptions and so on so we can reduce litigation. We are also looking at the whole stack of pending litigation that we have and to see are there general principles that we can agree upon which will enable us to knock off a lot of litigations as well. So we are working on that basis also. So again, please be assured, and I would like to assure all your viewers, we are here to work on your behalf, we are open to all suggestions, we are looking for all good ideas and we are willing to take forward all of those that are in the best interests of the country.Q: Speaking of ideas, an idea that got positive response, was the government’s decision to actually use the Masala Bond route, for instance as far as the railways are concerned, and there were a lot of talk whether more public companies will pursue that route and perhaps even private sector companies. Are we likely to see now the yield curve in that sense being built, on account of more public sector companies tapping that route?A: That is obviously something that we want to do, as you well understand, the fact is that long term project financing in India is really crippled right now, because we do not have a sufficiently deep and liquid enough corporate bonds market; whether that is offshore, or here in India. So we have to ensure that we build a broad, deep, well regulated corporate bond market and getting these Masala Bonds and getting international institutions like International Finance Corporation (IFC) and others to issue bonds here, rupee denominated bonds in India, build up the domestic market as well. It is all part of what we are trying to do is to build out that longer term yield curve, ensure that there are enough buyers and sellers on both sides, so that we have an orderly marketplace. Now you have seen what we have done, RBI of course has said that we will have more foreign investors buying government bonds and state bonds. We are opening up the market for state bonds as well which help in really establishing the yield curve on different tenures. All of that work is underway.It takes time to be able to build that. The other thing of course is that we have to ensure that we have sufficient buyers as well that are there to take these longer tenure fixed income products. And there we have work to do with our financial institutions. But interestingly enough, we are finding that there are many foreign buyers that actually want rupee exposure, because when they look at rupee exposure relative to their currencies, they feel the rupee is going to strengthen. So they are very attracted to the rupee exposure as well. So we think the Masala bond will definitely do well, we think that there are a number of government institutions and others that will go out and tap these markets.Q: Since we are talking about financing, let us also talk about banks and you have the opportunity to review the performance of public sector banks along with the finance minister yesterday, and NPA's continue to be the big worry there. I understand that that specific focus is on the steel sector, because that is the largest exposure as well as other commodities perhaps even aluminium. What more can we expect now as far as the Government's efforts to try and address the non-performing asset (NPA) situation?A: Asset quality is a matter of great concern to us and has been over the last year or so and we have been working with the banks to really get a very good handle on asset quality, because as you know well, what happens is that if you have certain sectors that are hit hard, we can go into a bit of a mini balance sheet recession; we have seen that in Japan, we have seen that in Europe, we have seen that in America. Now America did a really good job of cleaning up its balance sheet with the Troubled Asset Relief Program (TARP) facility and so on and really getting some of these assets off the balance sheet of the banks and really letting the economy move forward. Europe and Japan did not do as good a job and so they got mired into this balance sheet recession.Q: You were hoping to do this with the NIIF?A: We are doing it with NIIF. So, we understand all of those lessons and we have spoken extensively with experts, with our colleagues around the world in terms of how best to deal with this and really we think there is a four part story here when it comes to asset quality. First and foremost, we need visibility and transparency on that. So, the standards that RBI has put in place really enable us to get a very consistent view across the banks as to what is happening. There is a large credit repository that has been built as well so that we have that. Second, working with RBI, we have put in place ways in which banks can work together well to deal with these problem situations and that includes Joint Lending Forum, it includes strategic debt restructuring, that is the second thing we have done. Number three, many of these assets are actually impaired because of system wide or industry factors. We have a metal situation globally, that is really creating a lot of pain for iron and steel and aluminium companies around the world. So, we need systemic solution there. We need to come in and figure out what government policy can do other measures can do.Q: Beyond safeguard duties, anti-dumping duties, what else can we expect?A: There are various other instruments that are within the World Trade Organisation (WTO) purview that we could use. We are looking at those as well. And then fourth and finally, we have National Investment and Infrastructure Fund (NIIF) and other stressed asset funds that are stepping in Kotak has just raised the stressed assets fund and what we find is that business groups are increasing willing to look at resolution where they can step down their equity holdings, banks are willing to look at more reasonable capital structures and with fresh equity coming in, we can take on some of these assets and turn them around.Q: When do you see the NIIF doing what the Troubled Asset Relief Program (TARP) did?A: The NIIF, we have said very clearly is going to be launched by the end of the year. Everything that we are doing right now indicates that we will be able to meet the deadline. We have had very good discussions with long-term investors, Honourable Finance Minister was just in Abu Dhabi, Abu Dhabi Investment Authority (ADIA) has expressed a great deal of interest, other long-term investors have expressed a great deal of interest including General Insurance Corporation (GIC), including the Canadians and so on.So, now in the process of putting all of this together, finding the management team that will take this on board, so I will take this opportunity to say if there are people that are interested in working, please get in touch and we will obviously go through an open meritocratic selection process to bring on board, very talented, hopefully well qualified professionals that can really assist in NIIF.Q: Specifically, as far as the winter session is concerned, I know there was a meeting of senior party members today. What is going to be the priority? GST, bankruptcy code, I am talking about the economic calendar. Is land really going to be an issue that you would want to put your might behind as far as this session concerned or is the effort going to be to get the opposition on board and specifically get the GST bill done and get the bankruptcy code done.A: When you have to consider the Rajya Sabha separately from the Lok Sabha, the Rajya Sabha is where GST is right now and really all of us agreed that the first priority has to be GST in the Rajya Sabha, so let us take it one step at a time. We want to start with GST in the Rajya Sabha. Lok Sabha, of course, we have a packed legislative calendar there as well. So, let us see what sequence we put in that. Bankruptcy is very high. The RBI amendment is also quite important for us, real estate regulation and a variety of other bills are there also. But ultimately, where everybody’s attention is going to be is in the Rajya Sabha and on the GST.Q: What you are doing as far as structural reforms are concerned whether it is distribution companies (Discoms) and the ability to get Discoms back on their feet, that has gone down well as far as the market is concerned, but in the short term and we ask you this in the context with what we are seeing with corporate earnings which are yet to take off, continue to look weak, continue to disappoint. What could we see in the short-term by way of policy intervention, if anything at all, to try and stimulate the economy further?A: We have three very important things that are in the pipeline right now on the executive side. We just spoke about the legislative side. On the executive side, there are three very important things we are working on right now. One of course is NIIF as I said by the end of the year, we will have that underway. Number two, we are working on the IDBI transformation to see what we can do there. And number three, which is a very important initiative that the Honourable Prime Minister is driving is start-up India. So, these are three fairly important and very exciting.Q: But do you hope to get at least the IDBI, the transformation for IDBI done in this financial year? Do you think that is going to be possible?A: Absolutely, these all three, you ask for a short-term executive action, these are short-term executive actions.Q: Do you feel confident about the growth rate that you are targeting and do you feel confident about the green shoots that are now appearing or beginning to appear really blossom?A: I am quite confident about where the economy is at. People do not understand that we have gone through a macroeconomic stabilisation programme. When we inherited the economy in May, 2014, all the macro indicators were flashing red and typically, when you are in a situation like that, it takes two to three years to actually stabilise things from a macro perspective, we did that in a year and we were very lucky. Obviously oil prices came down as much as they did because they helped us stabilise it. But it does require tight monetary policy, it does require fiscal compression, so we have gone through that phase and then of course it takes time for the economy to take off from that particular stabilisation. That is what we are seeing now.Q: Room for another rate cut this calendar year or this financial year?A: You are asking the wrong person that question.Q: What is your gut telling you?A: We will have to wait and see. Like the Fed, the RBI also at this stage is driven entirely by what data comes in. So, we have to see what the data says.Q: Since you spoke of the Fed, the possibility of a December hike is now fairly imminent, are you feeling better prepared on account of the possible impact with outflows and so on and so forth.A: We have obviously been working hard as I said on the macro side as far as our debt situation is concerned. Our fiscal deficit is concerned, all of that has been worked on so that it sounds robust and not just the fed. There are a variety of other external events that can really affect us. So, we have to be prepared for all of them. To be prepared for all of them, we have to ensure the macro is robust and stable and we do what we are doing now, which is to put in place those deep structural reform initiatives so that the economy really has the productive capacity and the global competitiveness that is required to really create jobs and growth for all of our people.