The central government is confident of delivering on its budget commitments to raise external funds for infrastructure development projects in Andhra Pradesh and Bihar, Finance Secretary TV Somanathan told The Hindu in an interview. He also detailed measures to curb food inflation and boost consumption. Excerpts:
While the Budget’s boost to job creation is welcome, the main reason businesses are hiring is because of rising demand and capacity utilisation, and economists feel there is a limit to how much it can boost consumption.
Yes, there have been moderate tax cuts, mainly for salaried workers, but also smaller cuts for others. The push for capital investment continues. Schemes like the PM Gram Sadak Yojana are being pushed forward in a big way. [rural roads]Awas Yojana [housing]both rural and urban. These are big spenders in rural areas, the former with a big expansion to cover over 25,000 dwellings. This is rural spending by rural people who are engaged in these roles. So there is a fair bit of confidence there. Similarly, the 30 million new homes, 20 million of which are rural, are actually a big trigger for consumption. So I would argue that there are measures here that stimulate consumption, but they are not in the nature of direct cash transfers. They are consumption measures that work through asset creation. Incidentally, when employment incentives are paid, that also leads to some consumption. So it is not consumption through cash transfers for consumption, it is consumption for some desired purpose.
What about measures to curb food inflation, which is fuelling overall price increases?
All that can be done is being done against food inflation. One important point that has not been given much emphasis in the budget is the allocation of a record amount to the Price Stabilisation Fund. [₹10,000 crore]We intend to use this more aggressively in procuring pulses and oilseeds, building up sufficient buffer stocks in years when prices are low and releasing them when prices rise. This is an effort to stabilise food prices, especially pulses and oilseeds. We are serious about procuring at MSP. [Minimum Support Price] The hope is that this will boost production of these items and reduce price volatility.
In Andhra Pradesh and Bihar, they have provided funds for some projects and have committed to arranging funds for others…
These will be done only through concessional multilateral loans from the World Bank, Asian Development Bank, JICA, AIIB and other agencies that have given India significant assistance. These agencies will lend to the Government of India, which will then on-lease to the state. This is similar to other multilaterally funded projects in the state. Banks are happy to oblige and we can link them up. Building a capital city is very much an infrastructure activity. We are not in discussion about this. [any interest subvention for the States] still.
The Budget has shifted focus from targeting fiscal deficit from 2025-26 onwards to focus on debt-to-GDP ratio. Will this entail a target of reaching 40% of GDP over time?
It will not necessarily be 40%. We are saying that it will gradually decrease, but we have not yet decided how much and at what pace it will decrease, but we expect it to be on a downward trend. So, from 2025-26 onwards, we will be below 4.5% of GDP, but this is a commitment, we intend to definitely be below 4.5%. But how much the deficit will be also depends on how much we need to continue to reduce the debt. We have not yet decided whether and when we will reach what level the debt will decrease by x%. So, the deficit will be below 4.5%, but not necessarily 3% of GDP. We can continue to steadily reduce the debt even above 3%. That is the change in approach.
Is there a roadmap for that or will you take a view on an annual basis?
That’s for us to figure out. But what we’re saying very clearly is that the roadmap is going to be downwards. If you look at it in terms of the debt-to-GDP ratio, the trajectory of the road is downhill. How fast and what will the slope be? [determined] Every year.
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