The government’s proposed higher market borrowing at ₹14.95 lakh crore budgeted for 2022-23 has made bond markets jittery. Department of Economic Affairs Secretary Ajay Seth allays fears of crowding out private sector borrowers a day after the Union Budget at his North Block office. Excerpts:  There is a perception that gross government borrowing pegged at near ₹15 lakh crore for 2022-23 as against ₹12 lakh crore this fiscal is very high? Will it crowd out private sector borrowers?

When we look at any number, we have to look at it relative to GDP. Now fiscal consolidation announced by the Finance Minister last year, we are on track. Several economists had suggested that the fiscal consolidation path in post pandemic world should be gradual instead of rushing to achieve say 3 per cent of GDP as fiscal deficit. The government has in this Budget responded to the needs of the economy while at the same being fiscally responsible. Both are being taken care. Fiscal deficit is financed from several areas including market borrowing, small savings etc. Instead of looking at market borrowing, you should also factor in how small savings are expected to play out. We expect small savings to come in at ₹4.25-lakh crore next fiscal as against ₹6-lakh crore this year. So this will impinge on our market borrowing.

So do you think this high government borrowing will crowd out private sector borrowers?

No I don’t think so. Whatever capital private sector wants to invest, there is enough savings available for them to tap. 

What about 10-year G-Sec hitting 6.95 per cent? We are confident that between the RBI and government, the borrowing for 2022-23 can be completed in a non-disruptive manner. There are different ways to facilitate that and combined effort of RBI and Government will facilitate that part. As far as interest rates are concerned, that is function of market. Interest rates are a function of what retail inflation is all about. As far as retail inflation is concerned, we are confident that it will remain in the policy band if 4+/-2 percentage points. This year it may not be (-) 2 per cent.  Budget has allowed RBI to issue Central Bank Digital Currency (CBDC). What about amendment to RBI Act?

Amendment to RBI Act has been proposed in the Finance Bill. The RBI Act so far does not provide the definition of a “bank note”. For the first time, we are defining a “bank note” under Indian law. The RBI Act will define “bank note” means a bank note issued by the central bank whether in physical and digital form. We have also ensured that certain sections of the RBI Act that applies to say mutilation of physical notes will not apply to bank notes in digital form. There will be a carve out for that. 

Will the CBDC to be issued by the RBI will have any underlying asset or will it function like any fiat currency?

I don’t think there will be any underlying asset. It will be fiat currency in digital form. Being digital, it is programmable and one can build products and services around it. 

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Can a common citizen look to earn interest on the CBDC account that he will be allowed to maintain with the central bank? The RBI will come up with guidelines at the time of issuing CBDC. There is going to be wholesale digital rupee (transfer of money from one institution to another within India) and retail digital rupee. Both require different set of technology and both may not happen together. Which will be the sequence is still unknown and RBI will get into that area. 

What about amendment to Fiscal Responsibility and Budget Management (FRBM)? Are we looking for separate amendment to FRBM Act or a new FRBM law?

At this point of time we feel that amendment is not required. There is a clearly spelt out glide path. The question is what happens post 2025-26. Already debt to GDP ratios are elevated. There are still uncertainties that we are carrying and so it is difficult now to take a clear path on post 2025-26. Global situation is still evolving and so we felt that formal amendment to FRBM Act will have to wait than act on it now. How long we have to wait, I am not getting into that now.

Do you think Budget proposal on taxation of virtual digital assets should be accompanied by amendment to FEMA law?

I don’t think any amendment to FEMA law or rules are required. FEMA rules are clear. An individual can take out only $2,50,000 in a year and invest overseas. Anybody buying crypto assets beyond this limit is breaking the law. He should get ready to be hauled up. 

Overall stance on how to deal with crypto has not been taken. We have moved only on the perspective of bringing such incomes to tax. The clarity has been given on taxation front. The Budget neither endorses nor legitimises cryptos. Other than taxation, it remains unregulated. So all avenues in terms of policy response for a ban or otherwise— discussions are still on.