We have tried to do a Goldilocks on the fiscal deficit

On fiscal consolidation, with a deficit target of 5.9% of GDP in 2023-24 and less than 4.5% of GDP by 2025-26, are we leaving too much of the moderation for the last two years?

The contraction by 1.4 percentage points over two years, I would agree is challenging, but I think it is feasible. It is a bit backloaded, but given the macro-economic cycle and where we are and where global growth is likely to be in the coming financial year, we just felt that growth is the biggest source of fiscal consolidation. Good growth is actually the best way to consolidate rather than consolidate through expenditure and stifle growth. It’s a bit of a trade-off so if we could slightly press the accelerator this year, and if growth is kept up, then that eases the consolidation in the years to come because the consolidation required is 0.7% (per year).  But if GDP is buoyant, it would be easier to do. On the other hand, even if it was a lower target figure, but if GDP was very slow, it’ll be more difficult. So we have tried to keep it in sort of a Goldilocks balance – not too much consolidation, nor are we saying, we’ll leave everything for the future.  

How does the Budget address the current account deficit concerns?  

Current account is higher than it should be, let me put it that way. Hopefully, if oil prices don’t rise, then the coming year should be better because the biggest negative influence in the last year was the oil and gas sector. I am just hoping that the Ukraine conflict doesn’t intensify or lead to any new convulsions in the petroleum market. Also, I think the fact that the interest rates in India are now reasonably aligned with the West and there are not likely to be too many interest rate rises from abroad could mean that overall, the capital flows will remain steady and we may not see much pullout from India. So, on the whole, I think the current account situation will be manageable through an easing of import costs on petroleum particularly, and easing on gold, silver, platinum through customs duty action, which has happened, and possibly some reasonably favourable capital account inflows.  

So we don’t expect much from exports? 

Exports, with the global situation, no… But again, the positive side for us is our weakness as an export powerhouse is our strength when exports are declining. Because we are not so intensive in exports, unlike East Asia or somewhere else. United States’ recession hits East Asia pretty hard, much harder.

The personal income tax revamp aims to put more money into hands of people. Is that a way of pushing consumption or meant to dissuade savings of a certain kind? 

That’s a very good question but as an economist, I don’t agree with the perception that the old regime encourages saving. For the simple reason, if you look at the structure of the tax deductions, half of them are for savings and half of them are for dis-savings like housing loan or interest on housing loan. Is the housing loan a saving?  So overall macro economic impact, it’s not a savings push at all but merely a push towards certain things. Government wants you to do housing, insurance or pension. But it’s not necessarily a savings push or influence the savings rate in the country.  Second, there is a regressivity in this when it comes to the low-paid salaried class. You can say that somebody can take ₹3 lakh benefits from section 80C, ELSS and such deductions. A man who is actually at an income of ₹9 lakh is unable to save that much. They have expenses for family, children’s school fees, uniforms, transport… After that, for him to maximise the deductions is impossible. The breakeven amount at which people will shift – someone earning ₹7.5 lakh will have to save ₹1.62 lakh to be better off in the old system. This may be possible, but very few people who are really salaried will be able to save. The average salaried, low-paid person like a driver or an industrial employee, even if earning ₹8 lakh, doesn’t actually statistically save so much and actually end up paying more tax in the old system than they will pay in the new system. Saving is all very well, theoretically. But actually, what happens is these guys pay a higher rate of effective tax than the next person who can easily save more.  

You have raised small savings deposits limits for a couple of schemes and launched a new scheme for women. So are we looking at tapping small savings more for financing?

Yes, we have shown a fair increase in small savings next year, which has also helped keep market borrowings [lower]. But it is not an enormous amount – it’s just going from ₹4,25,000 crore last year to ₹4,71,000 crore. But that will happen because of these changes.  

You have kept market borrowings at a reasonable level, but will rising rates affect financing costs? 

Not directly for the government. For the incremental borrowing that we do in terms of our total stock of government borrowing, is such that even a 0.25% change doesn’t have a huge impact. Let’s look at our borrowing program. It’s about ₹15 lakh crore, if there is a change of 1%, it’s ₹15,000 crore. Now, 1% is not going to happen. Even half of that rise will mean just ₹7,500 crore, so the annual impact is small. Of course, there’s a net present value impact for the life of the security but it’s not of a magnitude that big. And I often tell bankers that you are looking at secondary market price impact. I am not in the secondary market. For me, this yield curve impact is very small. It only what actually affects me on what I’m borrowing now. I don’t have to mark-to-market my old securities. Therefore, it doesn’t impact us as much as it impacts banks.

References to job creation shot up in this Budget to the highest level since the last pre-election Budget in 2018-19. Is this a subtle message for the youth? 

We are doing quite a bit indirectly for employment – first, of course, is the capital expenditure, second is that ₹2 lakh crore of low interest credit is being extended to micro, small and medium enterprises, which is a big announcement, not enough people have picked up on. It will cut the cost of borrowing by 1% across the board. It’s mentioned in the speech indirectly because it’s not a reduction in interest rate, it’s a reduction in the guarantee fee which is passed on to the borrower. So it will be cheaper to take it for every MSME taking a loan through the CGTMSE collateral-free loans. This is actually going to double their portfolio and these are the most labour-intensive employers. Lab grown diamonds is likely to be a big source of jobs as will medical device courses to train people in operating them. We are going to become a manufacturer of medical devices gradually as there is a Production-Linked Incentive scheme for that. 50 tourism destinations being developed will create jobs. PM Kaushal Vikas Yojana 4.0 is different in the kind of courses on offer. Earlier, it was cookery, tailoring and welding. Now it’s coding, AI, robotics, mechatronics, IoT, 3D printing, drone skills. These are the trades of the future. Moreover, the Skill India International Centres will train youth for what is needed abroad. It could include elder care, geriatric care, which has huge global demand, right. Only countries like India can provide those.

What about allocations to sectors like education? 

Health and education, I understand people’s angst that we should spend more on these. The key problems in both sectors, at least in education particularly, is not money. We have more teachers than we need in the teacher to pupil ratio, and child population is declining demographically. It’s not quantity in education. It is quality, whether the teacher attends the school. Does he teach well? Does he make the child do homework? Does he not just pass the child whether the child has learned or not? These are not money. So actually pushing more money into education will achieve nothing. It’s the same in higher education also. Don’t we have enough universities, Don’t we have enough vice chancellors and are they not paid reasonably well? It’s not money, you have to depoliticise the university. Throwing money at it is a sop to the conscience of the intelligentsia that we are doing something for it.  In Health, we have to put money in the right places. I think the National Health Mission is doing pretty well and are pretty frugal. That frugality is good as money is scarce. Throwing money at private insurance is not a good idea. We are setting up 150 nursing colleges that will expand supply of nursing for both domestic and international markets and create jobs. So in health, also there’s not much to be concerned. Yes, if we had more money, of course…