In an interview to BusinessLine, Jayant Sinha, Minister of State for Finance, spoke about the Fiscal Responsibility and Budget Management Act and fiscal targets going forward, for which a review committee may be set up. He also discussed the performance of banking sector and the ambitious disinvestment target for 2016-17. Excerpts:

You have said that Fiscal Responsibility and Budget Management Act (FRBM) has been honoured more in breach than in observance. Why do you say so?

FRBM is a very important aspect of India’s fiscal management by setting benchmarks. The benchmark is that the fiscal deficit at both the Centre and the States’ level should be at three per cent. The States’ debt to Gross State Domestic Product (GSDP) ratio should not be more than 30 per cent. It has forced everyone to think carefully about fiscal management.

A lot of India’s growth in the recent past has come because States have borrowed less, interest rates have declined, and private investments have increased. FRBM was put in place in 2003. In 2004, the UPA government came and the first thing that P Chidambaram did as Finance Minister was to press pause on the FRBM. Thereafter, every year the FRBM was revised and the three per cent target was never achieved. So, the FRBM targets were observed more in breach than observance.

Our thinking on fiscal target is to be much more dynamic and flexible, to be counter-cyclical, if required. What we need to do is to think carefully about FRBM and fiscal targets going forward, so we have decided to set up a review committee.

But are the Finance Ministry and Chief Economic Advisor on the same page as far as fiscal deficit is concerned?

Ultimately, the policymakers in this regard are the Prime Minister and the Finance Minister and the rest of us just give inputs. The CEA has one point of view and there are others like myself, who provided another set of inputs. There is no contradiction within the Finance Ministry.

Performance of banking sector is now much debated. How are you addressing their concerns?

Our reform process is based on three phases – Phase I: governance and management introduced through Indradhanush.

Phase II: working with the RBI on asset quality review and the stress test of bank and corporate balance sheets. We are now in Phase III — transformation of the banks.

With IDBI, we are going with a transformation process. And the other banks, we will probably go through with a consolidation process.

For NPAs we have a five-pronged approach: Underlying stresses in each industry and dealing with those with policy intervention; recognising and provisioning for NPAs; strengthening resolution process for the banks; re-capitalising banks; putting in place longer-term measures including legislative changes — so that we don’t have another Kingfisher.

SEBI has been seeking more search and seizure powers. Is it under consideration as it has already gone ahead and defined wilful defaulters?

SEBI already has these powers. We will consider what SEBI says and will take into account their views.

What about subsidy on gold — jewellers are opposing the one per cent tax on gold?

If we want a successful Goods & Services Tax, it has to be as broad-based as possible.

We have already excluded some very important items including alcohol, petrol and electricity. If we exclude jewellery as well, which is a very large industry, effectively what it means is a higher tax rate on all the other items.

For 2016-17 ambitious disinvestment target has been set despite not such good progress in 2015-16. Where is the confidence coming from?

You have to look at what we were trying to accomplish in terms of fiscal management.

We wanted to accomplish fiscal deficit at 3.9 per cent and we could do that due to the decline in oil prices, savings and subsidies.

The pressure on divestment was not as intense. So we said, fine, if we can get more time to think through the divestment process, that’s not such a bad thing.

We are committed to divestment, including strategic stake sales. But let’s make sure, we have the policies and mechanism in place in a thoughtful manner.

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