The economic affairs secretary has announced an increase in government borrowing for the second half of the fiscal (FY12)by Rs 52800 crore. This comes amidst worries of economic slowdown and a depleting treasur.....
The economic affairs secretary has announced an increase in government borrowing for the second half of the fiscal (FY12)by Rs 52800 crore. This comes amidst worries of economic slowdown and a depleting treasury that the nation now faces. Ashok
Jha, former finance secretary and Ajay Shah, senior fellow at NIPFP, in an interview to CNBC-TV18's Udayan Mukherjee and
Mitali Mukherjee, shared their views on the government borrowing programme.
There is a fear that schemes such as National Rural Employment Guarantee, which have boosted consumer demand significantly,
will also have to see substantial cuts due to the borrowing programme.
Jha said that government cannot cut back on National Rural Employment Guarantee Act (NREGA) because it covers the entire
country and it is a demand-driven scheme.
“The increased borrowing program is a reflection of the fact that government’s projections of revenues in the current year
have not been apparent, and hence, it has to borrow more. Unless it increases revenues and cuts down on expenditure, the
fiscal deficit target will not be met,” warned Jha.
“The announcement about enhanced borrowing was not about a large fiscal deficit, but it was about the mechanisms of
financing the fiscal deficit, since India is facing big fiscal deficit problem,” said Shah.
Did you miss? Govt borrowing up by Rs 52800 crore in H2FY12
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: Anyway our investment cycle has been very tepid and lukewarm over the last many quarters. How much of a crowding-out
effect do you expect because of this much enhanced borrowing programme from the government now?
Jha: It’s partly crowding-out and partly the decline in investment because people are not finding it attractive to invest
in the country. There are domestic companies looking to invest abroad. Some of that investment is for strategic reasons,
but more of it is because there seems to be a lack of confidence in the economy. So, the crowding-out effect has come since
the increased borrowing program is only part of the story.
Q: Apart from the slippages that have happened both in terms of the divestment plan that the government had set out and in
terms of tax collections, there is a fear that a couple of programs such as NREG, which has actually boosted consumer
demand significantly, will also have to see substantial cuts. Would you say that is a possibility of that and how will that
impact the consumer demand that India has been so proud of?
Jha: Well, I don’t think the government can cut back on NREGA because NREGA now covers the entire country and it is a
demand-driven scheme.
Q: The RBI has been hinting at it and most commentators have been pointing out that many of India's macro problems are a
result of a loose fiscal policy that the government has been following. Yesterday’s borrowing figure is an example of that
or reflection of that too. Do you think something serious needs to be done on that front?
Jha: The government’s projections of revenues in the current year have not been apparent and the increased borrowing
program is a reflection of that because the tax collections, the buoyancy, which was expected, is not there, and therefore,
they have to borrow more.
There are only two ways of meeting the fiscal deficit. One is to increase revenues and the other is to cut down on
expenditure. So, cutting down on expenditure is always little more painful than trying to increase revenues by whatever
means.
Q: What are the other options the government can look at because there have been slippages on divestment, subsidies, etc?
Shah: I want to separate two things. Firstly, what is our forecast of the fiscal deficit? Our view about the fiscal deficit
has not changed a lot. Our fiscal deficit story for the year is about the expenditure programs, which are probably not
going to spend as much as expected.
The real story lies in the modest assumptions that have been made about the petroleum subsidy. So, they will end up
spending a lot more on the petroleum subsidy and the deficit will be bigger than planned. It is the financing of the fiscal
deficit, which has changed. They thought they were going to get fix this problem through disinvestment and small savings,
but instead of that, they are now looking at the bond market, so that is the new development and it should be interpreted
as such.
Q: The government had ear-marked Rs 40000 crore, but it’s got very little of that. What are your observations on the kind
of plan, which has been mooted now? Will government ask the public sector companies to buy off government paper?
Jha: It really would not be disinvestment and besides, I don’t see how the government can direct the public sector
undertaking to buy or sell securities. I thought public sector undertakings were autonomous, they have their own boards,
the boards decide on their policies. So the government, as an owner, cannot start running the enterprises. So, it’s a very
good idea and government may not intend to go ahead with this.
Q: Any thoughts from you on this process, which has been mooted?
....
more infoJha, former finance secretary and Ajay Shah, senior fellow at NIPFP, in an interview to CNBC-TV18's Udayan Mukherjee and
Mitali Mukherjee, shared their views on the government borrowing programme.
There is a fear that schemes such as National Rural Employment Guarantee, which have boosted consumer demand significantly,
will also have to see substantial cuts due to the borrowing programme.
Jha said that government cannot cut back on National Rural Employment Guarantee Act (NREGA) because it covers the entire
country and it is a demand-driven scheme.
“The increased borrowing program is a reflection of the fact that government’s projections of revenues in the current year
have not been apparent, and hence, it has to borrow more. Unless it increases revenues and cuts down on expenditure, the
fiscal deficit target will not be met,” warned Jha.
“The announcement about enhanced borrowing was not about a large fiscal deficit, but it was about the mechanisms of
financing the fiscal deficit, since India is facing big fiscal deficit problem,” said Shah.
Did you miss? Govt borrowing up by Rs 52800 crore in H2FY12
Below is the edited transcript of the interview. Also watch the accompanying video.
Q: Anyway our investment cycle has been very tepid and lukewarm over the last many quarters. How much of a crowding-out
effect do you expect because of this much enhanced borrowing programme from the government now?
Jha: It’s partly crowding-out and partly the decline in investment because people are not finding it attractive to invest
in the country. There are domestic companies looking to invest abroad. Some of that investment is for strategic reasons,
but more of it is because there seems to be a lack of confidence in the economy. So, the crowding-out effect has come since
the increased borrowing program is only part of the story.
Q: Apart from the slippages that have happened both in terms of the divestment plan that the government had set out and in
terms of tax collections, there is a fear that a couple of programs such as NREG, which has actually boosted consumer
demand significantly, will also have to see substantial cuts. Would you say that is a possibility of that and how will that
impact the consumer demand that India has been so proud of?
Jha: Well, I don’t think the government can cut back on NREGA because NREGA now covers the entire country and it is a
demand-driven scheme.
Q: The RBI has been hinting at it and most commentators have been pointing out that many of India's macro problems are a
result of a loose fiscal policy that the government has been following. Yesterday’s borrowing figure is an example of that
or reflection of that too. Do you think something serious needs to be done on that front?
Jha: The government’s projections of revenues in the current year have not been apparent and the increased borrowing
program is a reflection of that because the tax collections, the buoyancy, which was expected, is not there, and therefore,
they have to borrow more.
There are only two ways of meeting the fiscal deficit. One is to increase revenues and the other is to cut down on
expenditure. So, cutting down on expenditure is always little more painful than trying to increase revenues by whatever
means.
Q: What are the other options the government can look at because there have been slippages on divestment, subsidies, etc?
Shah: I want to separate two things. Firstly, what is our forecast of the fiscal deficit? Our view about the fiscal deficit
has not changed a lot. Our fiscal deficit story for the year is about the expenditure programs, which are probably not
going to spend as much as expected.
The real story lies in the modest assumptions that have been made about the petroleum subsidy. So, they will end up
spending a lot more on the petroleum subsidy and the deficit will be bigger than planned. It is the financing of the fiscal
deficit, which has changed. They thought they were going to get fix this problem through disinvestment and small savings,
but instead of that, they are now looking at the bond market, so that is the new development and it should be interpreted
as such.
Q: The government had ear-marked Rs 40000 crore, but it’s got very little of that. What are your observations on the kind
of plan, which has been mooted now? Will government ask the public sector companies to buy off government paper?
Jha: It really would not be disinvestment and besides, I don’t see how the government can direct the public sector
undertaking to buy or sell securities. I thought public sector undertakings were autonomous, they have their own boards,
the boards decide on their policies. So the government, as an owner, cannot start running the enterprises. So, it’s a very
good idea and government may not intend to go ahead with this.
Q: Any thoughts from you on this process, which has been mooted?
....