Economic Affairs Secretary Ajay Seth does not see borrowing number for FY 2023-24 as challenging. In an interview to BusinessLine, he said the decision to raise money through Sovereign bond will be taken in September, 2023. Excerpts:
How should one read in the 5.9 per cent fiscal deficit number?
The message for the common man is that the government is managing public finances in a prudent manner so that the growth requirement of the economy is met. Simultaneously, nothing is being done that will adversely impact the long-term interests of the economy.
Estimates for gross borrowing and net borrowing in FY24 are less than market expectations. However, the key issue is that debt burden is rising and almost 20 per cent of our receipts go towards debt servicing. How is the government going to reduce this?
Our debt-to-GDP ratio went up because of the pandemic. Before that, we were well on the path of reducing the ratio. The pandemic happened in a year when the economy contracted, and there was very little revenue available. At the same time, the government had to provide targeted and significant support to different sections of the society and different sectors in the economy. And keeping that in mind, it is at an elevated level. But I won’t call it a matter of concern. It will become a concern if the government is not doing anything about it. But the government is being fiscally prudent and bringing this ratio down over a period of time. There can’t be any sharp correction in one or two or five years. Every year, one has to nibble at it little by little. The fiscal deficit number is coming down in a growing economy and that means the government is borrowing less. This is the first year where in-between net borrowing of 2022-23 and net borrowing of 2023-24, in spite of the economy having grown, there is not much difference. The market will see that happening going into the future as well.
Do you see gross borrowing of ₹15.4 lakh crore as challenging?
Should not be. For example, next year, the economy should be 10.5 per cent bigger compared with 2022-23, whereas net borrowings would have gone up by about ₹35,000 crore, which means a growth of less than 4 per cent.
The government is borrowing ₹16,000 crore through the sovereign green bond this fiscal. What is the estimate for next fiscal?
First of all, this year green bonds are part of the overall borrowings, and next year, if and when that happens, they will be part of the overall borrowing. We have assessed the requirement. First, we came up with a framework and identified the projects.. we should fit into that framework. Their requirement is in the order of about ₹20,000 crore. And, next year’s requirement, if I recall, is of the order of ₹25,000 crore. But the money, which we have raised now in one instalment and will be raising another in a week’s time, will be utilised over the next three quarters. And then the need for further money would be there. So that decision, whether to go for and when to go for will have to be taken when we decide on the calendar for the second half. Then, we have to see how the response has been and what kind of appetite there is for this kind of paper the next year. For pure-vanilla G-Sec paper, there’s enough appetite, but this is not a pure-vanilla G-Sec paper. It is a green bond for a different kind of investors. We will take the decision somewhere around September.
Capital expenditure is rising but the impression is that it is not able to crowd in the private investment...
The crowding-in happens in a different manner. One, it happens at the infrastructure level, through the public private partnership and that is a long haul. Government investment is happening in railways, roads, State government projects and urban infrastructure. These are creating conditions where the private sector investments can happen because infrastructure constraints get reduced. The second channel through which it operates is when these investments are happening...those constructions are happening...it implies more people...it requires more steel, more cement and more transportation that generates jobs.
When capacity utilisation in different sectors goes up, investment comes in plant and machinery, investment comes in service industry... So, it is not necessary that private sector would come in and start infrastructure. It doesn’t happen that way. It will come in sectors where they are good and where the economic and financial viability works for them. I’ll say that over the last three quarters, the private sector is coming in, but there is still a scope for it to happen in a much bigger manner. Several of them have announced their projects, and of course, there is global uncertainty. At this point of time, those who are borrowing from abroad...it is a little tougher for them because of rising interest rate globally. Still, I feel there is scope for improvement (for private sector participation).
Another issue is because of more emphasis on new interest tax regime, the impression is that that it is going to disincentives saving and investment and because of that household saving and investment is expected to come down. What do you have to say?
The thought process is that individuals’ decision to save in a particular instrument or decision to invest in a financial product or even in a physical asset should be based on that individual’s assessment of the returns. Rather than saying that I get this much of return, but I get a tax incentive, so let us decide on this meaning all instruments should be at a level playing field, all saving instruments have to compete with each other. Otherwise, if you have several instruments without tax incentive, and one instrument with tax incentive, this is not a normal prudent allocation of one’s own savings. And so the idea of the taxation side would have a simpler tax regime with no or bare minimum tax exemption and a moderate rate. It is easier for individuals it is easier for government. So that’s the thought process, I don’t see that having an adverse impact on saving, not at all.
The budget has proposed setting up National Financial Information Registry. What will be its role?
This is focusing only on the credit aspect and it is not a repository for risk assessment of the overall economy and macroeconomic issues to be looked into. For example, CICs (Credit Information Companies) have credit information. Then, for the purpose of IBBI (Insolvency and Bankruptcy Board of India), there’s another set of people who have the information. When the people who have to provide credit, the banks and NBFCs or the market, where the people go for raising money through various instruments, including bonds, or the credit rating agencies who have to provide the credit rating, if they don’t have complete information, then they will end up putting more risk. And if the risk is not correctly assessed, interest rate will be higher and avoidable cost of interpretation or cost of intimidation will be higher. The idea is for good assessment of the risks, complete information should be available to the credit players and associated, In the similar manner it is not just about credit or the behavior around them, but other ancillary information like how much tax one has paid, how much he is involved in the dispute and so on. For example, we are increasingly talk talking about a collateral free borrowing based on the volume of or invoice based lending for the smallest units. So, to get a complete picture of the credit information, this NFIR will work.