We will not do populist giveaways as fiscal consolidation is a priority, says DEA Secretary Subhash Chandra Garg
DEA Secretary Subhash Chandra Garg said, “We don’t factor in inflation directly, we take it through the GDP because GDP is real growth plus inflation.” DEA Secretary Subhash Chandra Garg said, “We don’t factor in inflation directly, we take it through the GDP because GDP is real growth plus inflation.”
Department of Economic Affairs Secretary Subhash Chandra Garg said the Budget provision for two big announcements — the healthcare scheme and cost-based Minimum Support Prices to farmers — will be done in the coming months when these proposals are finalised. The government expects these two schemes to cost around Rs 10,000-12,000 crore in 2018-19. When asked about the fiscal slippage, Garg said “there’s a complete commitment at the highest level of the government” to reduce the deficit. In an interview with The Indian Express, he said the average fiscal deficit between 2009 and 2014 was 5.5 per cent and the government has brought it down sharply to 3.5 per cent of GDP this year. Edited excerpts:
Have you factored in the inflationary impact of major announcements of health insurance and MSP hike?
We don’t factor in inflation directly, we take it through the GDP because GDP is real growth plus inflation. The next year we have done about 11.5 per cent that takes care of the 7.5 per cent of growth and 4-4.5 per cent of inflation. That is one area. You probably are referring to MSP and health scheme announcement. These are programmes for which the commensurate Budget provision has not been made. For health scheme, we have the provision in name of that old scheme (Rashtriya Swasthya Bima Yojana), which is for Rs 2,000 crore. This scheme might cost more depending upon its configuration, ratio of sharing between the states and the Centre, etc. There might be an additional requirement of maybe Rs 2,000-4,000 crore. That’s not a reason (to worry). The MSP scheme comes into play with the kharif season, which would mean procurement or differential payment after October. So, it will have some impact for about 5-7 months. That might require a certain kind of provision to be made. Both these schemes will be well within Rs 10,000-12,000 crore. I think we should be able to make provision for that.
Will the model for health scheme be trust based or insurance based?
This scheme in some variant is applicable in some states today. RSBY was insurance model. Options would be considered, exclusive trust model or an exclusive insurance model or a mix of both, option to the states to choose. All those issues would get finalised when the Cabinet considers the scheme.
Will private insurers also be allowed?
Of course, if the insurance model is there, private companies will definitely be eligible.
When will the scheme be rolled out?
Three months will be a fair estimate… So, by June-July it will be implemented. We would like to do it faster.
There is criticism that you missed the fiscal deficit target thrice in last 4 years. As per the original FRBM law, the fiscal deficit was to be cut to 3 per cent by 2009, which will now happen in 2021. Given that the oil bonanza for 3-4 years, how do you explain the slippage?
Today the bond yields are down, not up and the market seems to be really getting a real sense that it’s not a let-down, but a strong consolidation. Please remember a couple of things, the 2009 target was missed out because of the global financial slowdown and other things. And from then till 2014, the average fiscal deficit was 5.5 per cent. After this government took over, we have made a very clear statement that we will have fiscal consolidation and I can tell you that there’s a complete commitment at the highest level that fiscal consolidation is the priority. We will have growth, we will have investments, we will have expenditure, we will not do populist giveaways/freebies etc but fiscal consolidation path is very, very much desirable. And that is reflected in consistently bringing down of fiscal deficit from the time this government took over, from 4.4 per cent, to 4.1 per cent, then to 3.9 per cent, then to 3.5 per cent. This is a very credible record. Only once this year we missed it. We are keeping at the path where we were last year and then we are resuming again on the fiscal consolidation. And then you have seen the Finance Bill where the government has accepted the recommendation on debt rule, made it statutory binding to bring down the fiscal deficit to 3 per cent in only two years from now.
The FRBM panel also suggested setting up a fiscal council. Is it in the pipeline?
That recommendation has not been accepted.
Are these the only three recommendations being accepted?
No. There are some more like effective revenue deficit concept should be done away with, that has been done away with. Some have not been accepted. Revenue deficit target has not been, so, a very balanced view has been taken about accepting recommendations.
In the fiscal deficit math, below the line accounting has been done for recap bonds. Is it be a concern for rating firms?
There’s no below the level accounting in India. The capitalisation bonds are very much part of the consolidated fund and there is an investment entry as an expenditure of Rs 80,000 crore. For investment into banks’ equity, there’s a liability side entry on receipt side as Rs 80,000 crore as investment in government bonds. Since it is a cash neutral transaction, this is presented. We have a very recognised system that we can present certain transactions as minus entries. So both these transactions cancel out from the fiscal deficit point of view as there is no cash payment. We include them in the debt and liabilities. So, it is a completely transparent treatment. Whatever interest we have to pay for the bonds is provided for in the interest payments.
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