In a Q&A with Doordarshan, Jaitley discusses how he chose the areas on which he would spend more.
Can you tell us about the central philosophy of the Budget principles?
The Budget has to be linked to the present context. What does the economy need? We are strong on three grounds: Public investment, a lot of FDI (foreign direct investment), and -- but for the demonetisation period -- increased consumer spending. And, the sowing of crops is good, so the yields will be better.
Our weakness is the private sector and that the banks still struggling. I had to spend more. Now, do I just increase the number of schemes, or pick up the most successful areas and spend on them?
The first area that deserves spending was agriculture. So, I spent on irrigation, rural roads and housing; also farm sector insurance.
The second area was the social sector.
The third, infrastructure: We allotted Rs 3.9 lakh crore, of which Rs 2.5 lakh crore would be spent transportation. For the railways, I am providing support of Rs 55,000 crore.
Highways, ports, telecom connectivity, smart cities, rural roads -- these are all emerging success stories. So, I had to build on these.
The second thing on my mind was, what does the economy need? For the first time in a Budget, I have provided the honest data that we are a non-tax paying nation.
The burden of taxation is on the honest taxpayer, who has to pay his share and that of the evader. So, I have to provide him some relief, even as I go hard on the evader.
There are multiple purposes for giving relief to the small taxpayer. There will be more money in his hand. Inflation has added to his costs. Also, I want to make paying taxes attractive for the evader.
Now, many pay five per cent tax, claiming all these deductions. They can enter the tax net, no scrutiny. I want to expand this base.
After demonetisation, I want to help the MSME (micro, small and medium enterprises) sector. I had a promise to keep.
So, I extend concessions, unconditionally, without exemptions being waived for 96 per cent of companies. I tell the sole proprietorship or partnerships: Switch over to company and you pay less tax. You have a transparent balance sheet, file with the registrar, get banking finance, and you pay five per cent less tax.
At the same time, MSMEs are job creators. So I give this relief to them.
I give relief to the housing sector, something I did last year as well. Affordable housing becomes infrastructure and so on.
One or two steps are predominantly ethical.
People who make a mockery of the financial and legal system must pay. So, we go hard against them. The prime minister had made it a personal crusade to cleanse political funding. So, I had to take a big step. This is a subject very close to my heart.
As a law minister, I had taken the first step by exempting it from tax. Now, I had to take the next step. I think there was a convergence of our opinions.
I am a bit puzzled by your revenue assumptions. You have 17 per cent growth in revenue for the current year. Yet, you are showing revenue growth of only 12 per cent (add next year). The economy is projected to grow at 11.75 per cent. Are you being conservative? Or is there something else?
It is better to err on the right side. You saw the earlier UPA government had a big budgeted expenditure. The actual expense was always Rs 1 lakh crore or Rs 1.5 lakh crore less. I have restored the sanctity of the Budget. Every year, the revised estimates have been higher.
As we end this year, I see almost Rs 70,000 crore more in indirect taxes, corresponding to a lesser extent to direct taxes. So, there will be Rs 80,000-90,000 crore more taxes on March 31. My REs (revised estimates) -- this year, and last -- will be higher than BWs (Budget estimates).
Last year, I had the advantage of the additional revenue because of the excise. I don’t have that this year. So, I have been modest.
Two years in a row, revenue has grown 17 per cent annually. I’m assuming 12 per cent this year, but if I grow 14-15 per cent, I shall have money to spend.
The entire revenue projection relies on one item: Personal income tax (I-T), which is growing at 25 per cent, whereas corporate income tax is growing only nine per cent, and excise only five per cent and service tax only 11 per cent. These are all very, very conservative estimates. What gives you the confidence you will receive more in income tax?
People who were transacting in cash have been compelled to put that money in the banks. Demonetisation, to that extent, expanded the base and I think people will disclose more. There is the declaration by the CBDT that in the first analysis, they have identified 1.8 million people whose cash deposits are disproportionate to their declared income. A lot of that will come in as I-T.
Companies have to be better to pay more corporate tax, and, of course, manufacturing has to pick up to pay more excise. Also, excise is going to vanish in the middle of the year into GST (goods and services tax).
The first few months of the GST will be experimental and then, of course, when GST takes over after a couple of months in a big way, the indirect tax collection will expand.
The Budget also has a provision for divestment, again very ambitious. In the past two years, you have not met your target?
We are divesting more and making less noise. In the government led by Mr [Atal Bihari] Vajpayee we divested Rs 27,000 crore. This year, I have already divested Rs 31,000 crore and will touch Rs 45,000 crore. Next year, beside divestment, I would have listed all the insurance companies.
Under Sebi norms, I have to bring down the government’s stake in its companies to 74 per cent. We have brought in a lot of flexibility in disinvestment, we are also doing strategic sale. Where divestment is not possible, we will buy back.
An important step is the abolition of the Foreign Investment Promotion Board. Do you have a roadmap for the future?
We will finalise that over a period. FDI has become easier; 90 per cent of FDI is now through the automatic route. So, FIPB is required in only 10 per cent of cases where earlier the investor had to wait a year, two years or three years, and all kinds of questions were raised.
Most of these cases are marked to FIPB, but some of these require consent from the parent department; both go to FIPB for clearance. Let it be decided by the parent ministry; they are as competent as the finance ministry.
Are you saying you are giving away your own powers?
That’s the whole idea behind liberalisation.
There is a criticism that you haven’t done enough for defence?
If the defence ministry can speed up its acquisition mechanism, they can get as much money as they want. Budgetary allocations are only indicators; defence gets the highest priority. The amount indicated in the Budget, plus the pension amount, is a large amount.
The Economic Survey had a lot to say about Universal Basic Income. But the Budget didn’t talk about it?
It is fantastic idea that Arvind Subramanian has put on the table. The idea is now being globally discussed -- to say the least, it is a beautiful idea.
You take all the subsidies that the State is giving -- both you and I are getting subsidy but such subsidies have been largely untargeted -- and give a certain amount in the hands of those who need it most.
The difficulty that I see here is that India’s politics is yet to mature and in a politics that has not matured, UBI is impossible.
UBI as an alternative to the current structure of subsidies. That doesn’t mean it is not a good idea but in the Economic Survey you will sometimes get ideas that can be taken up for debate in the future.
He had given us the idea of subsidies for the rich last year. That set all of us thinking. This time, it is the Universal Basic Income. Both the ideas merit serious discussion among opinion-makers.
Are you saying it is an idea whose time hasn’t come?
I think it’s an idea whose time should come.
No discussion on the Budget is complete without a discussion on fiscal consolidation. You have raised the target to 3.2 per cent while it is understandable in the current situation.
What is the status of the N K Singh report? And is there a debate on what should be the approach of the government to debt as a percentage of GDP? Should that also be a yardstick?
The N K Singh committee has expressed two views. The members have expressed a view that this year we should bring down 3.5 per cent to 3 per cent, give a pause for a period of three years and then go down further. That’s the predominant view.
There is an alternate view suggested in the same direction which doesn’t talk of the pause. It says in the next 5 years, have a blind path of 0.2 per cent each year.
I take them as parallel views. This year, I was faced with the option of spending more because others are not spending, so can I take a 0.5 per cent hit. I tried to balance it, I couldn’t.
If my revenue estimates go wrong and instead of 12 per cent tax buoyancy I have 14-15 per cent, I will try and reach that. Fiscal consolidation is an objective.
Debt to GDP ratio is historically accumulated and if you have to bring it down, you have to bring your current deficits down. That’s why we are struggling at the moment.
Compared to last year I have brought revenue deficit down. I am 0.1 per cent ahead of the target. Coming here, I fixed it at 1.9 per cent.
What about corporation tax?
Should I phase out exemptions ahead of time? The answer is “no”, as the companies are not in the best of health.