Finance Secretary TV Somanathan on Friday said that future projections of the economy are based on realistic estimates of expenditure and growth. In an interview to businessline, Somanathan spoke on subjects ranging from inflation to private investments and fiscal deficit. Excerpts:


What are the factors restricting the fiscal deficit to 5.8 per cent of GDP during FY24?

Two things have happened. One is the overall expenditure has not exceeded the Budget Estimate. The combined total of revenue and capital expenditure is within the expenditure estimates and revenues are slightly higher. These two together have helped constrain the deficit to 5.8 per cent even on a lower GDP. The numbers are self-explanatory. The net revenue is not up much compared to the Budget Estimate because the devolution to States has increased substantially. The non-tax revenue is substantially higher than budgeted which is one important source of consolidation. Expenditure has been managed within the Budget Estimate in aggregate. Of course, capex is slightly below the original target of ₹10-lakh crore and is expected to reach 95 per cent of the target. A slight saving on capex, an improvement in non-tax revenue are the main sources of the consolidation.


In the previous Budgets, allocations for some ministries were lower in the Revised Estimates as compared to the Budget Estimates. What was the trend this year?

This is a normal phenomenon in government budgeting because the rules require that if you are unable to spend something, it should be disclosed to Parliament as early as possible. So, the RE reductions in this year’s Budget, none of them represents a conscious cut for financial reasons. They represent the estimates presented by the Ministries to us and our joint estimation about what will actually be spent. if that is all that they can spend, we are supposed to disclose that to Parliament and that is why they have been lowered. There is no deliberate cut. It reflects the ability to spend on the ground. There can be various factors on the ground, for instance land acquisition may not have happened. There could be some other conditionality which some agency has not been able to meet. There could have been an election in some States. There are various reasons why budgeted expenditure may not happen. So, you have to budget it because without the budget they can’t spend. But it doesn’t mean that whatever is budgeted will always be fully spent. In some cases, it is overspent. In some cases, it is under-spent. There will always be some surrenders of schemes, and this is not a new phenomenon. You will find this almost in any budget of any government, state or central over the years.


One exercise which you undertook was ‘Just in time release of fund’ along with SNA (Single Nodal Agency) and CAN (Central Nodal Agency) Account in order to ensure that funds should be spent properly and not be kept idle. What has been the savings during FY24?

Approximately, ₹10,000 crore.


Coming to FY25 Budget Estimate for fiscal deficit which is 5.1 per cent? What are the key factors behind it?

It is a combination of revenue and expenditure. The revenue projection of 11.5 per cent is with 10.5 per cent GDP growth. I think each of those elements is realistic. 10.5 is realistic and I don’t think that would be disputed. There is no reason to believe that tax buoyancy would not be 1.1. The Revenue Estimates are very sound and likely to be achieved. Non-tax revenues are realistically estimated. There is only a slight increase over the current year. I am very confident we will achieve them. And as far as expenditure is concerned, the aggregate expenditure grows at about 6-7 per cent approximately. I think that is an achievable number. It’s a mix of a growth of 11 per cent in capital expenditure and less than that in revenue expenditure. Overall, I think the numbers are achievable. They are also factoring the present levels of subsidies. That has helped. The fact that we expect fertiliser subsidy to be a little lower next year is a helpful factor that has also helped in this consolidation.


Considering the geopolitical situation, why you are so optimistic about fertiliser subsidy to be lower?

We have already seen the effects of the war in Ukraine and Russia and those are already factored into the global fertiliser prices. The closure of a channel in the Red Sea is not that sensitive for fertiliser. There are many alternative sources. It is not concentrated in the Gulf. The average prices for next year, we have taken a reasonable estimate. Still if situation warrants more, we will provide more. We have enough space within the aggregate ₹47-lakh crore Budget that minor fluctuations resulting from risks can be accommodated.


But Red Sea crisis could affect overall supply…

Overall supply may affect cost in the economy. I am looking at what affects the fiscal position. The fiscal position is impacted by such events only if it results in an outgo of subsidy or on something else that is directly relevant. Here barring fertiliser. I don’t see direct impact on the fiscal position. Okay. It may impact imports, it may impact exports, it may impact industries cost that’s a separate issue. Cost to the economy is different from the fiscal position.


Food inflation is not coming down. How big is a concern is that?

The new monetary policy arrangements came into force in 2016. The primary responsibility for inflation now rests with the Reserve Bank of India. So, I would not be able to give you any comprehensive answer on how to contain inflation or what are the measures that should be taken. I think that is in the domain of the Reserve Bank.


But supply side is to be taken care of by the government?

The government has proactively altered import and export duty rates to keep inflation down and it has, to that extent, succeeded. Food inflation is far lower than it has been in certain earlier cycles of global crisis. For example, in the early part of the previous decade. The government continues to be watchful, and every possible measure is being taken. But we cannot completely rule out fluctuations based on international circumstances or based on climate change. And these are things which we have to work with.


We have seen higher capex allocation by the government. However, we are not seeing private investment picking up. What are the reasons? What kind of support do they need?

A. You’ll have to ask the private sector about the problem. I’m afraid I would not be able to shed any light on that. However, I do not agree with your proposition that private sector investment is not picking up. I don’t have statistics of private sector investment the way I have statistics of public sector investment.

So, I have to rely on second-hand information and secondary sources. My secondary sources in industry keep telling me that they are expanding their private investment, PMI is high and the survey of Chamber of Industry shows that everybody wants to invest more. Apart from that, I will point to one statement in the budget which is a concrete example of rapid private sector investment. About 1,000 aircraft are being purchased. Is that capital investment or not? And does that end with the purchase of the aircraft? Is there not a requirement for augmenting ground handling, equipment to maintain and staff to be employed to handle these? So, capital investment is happening.

The question is – what is the strength of it and how quickly is it happening. I will also say this – ultimately, there are limits to government’s ability to keep expanding capital expenditure. There are fiscal limits, and we will adhere to prudent limits. It cannot be a continuous substitute to private sector having to invest or not having to invest. I think the private sector should invest where it thinks it is prudent to invest. It is not for me to tell them to invest if they don’t find investment opportunities, but India abounds in investment opportunities. Therefore, I remain very optimistic that there will be rising private investment.

The Revenue Estimates are very sound and likely to be achieved. Non-tax revenues are very realistically estimated. There is only a slight increase over the current year. I am very confident we will achieve them.TV SomanathanFinance Secretary