Finance Secretary Subhash Chandra Garg, who is also in charge of the Department of Economic Affairs, believes there will not be any confusion on nominal growth numbers and it will be 11 per cent. Garg told BusinessLine the government will come out with specifics for borrowing overseas by September. Maintaining that the government no longer is concerned about taking average price of crude oil for making its Budget projections, he said fiscal deficit target lowering is just a work of ‘marksmanship’ and not a drastic reduction in number. Excerpts:
What is the timeline for overseas borrowings as proposed in the Budget?
The policy announcement has just been made. Many decisions need to be taken. We will start working on specific issues, including getting an advisor and other things. My sense is that sometime around September, when we come up with the second half borrowing programme, at that stage, we should be able to tell you very specifically about when are we going to launch, which currency, which markets and in what quantum.
What will be the mix of domestic and overseas borrowings in the total budgeted borrowing?
Our overall borrowing programme is set by our fiscal deficit and borrowing resources. So it is not additional. So, if you have to borrow ₹7 lakh crore, decision on mix needs to be taken after careful analysis of the potential demand for the Indian paper — the likely rate, appetite of the markets, what kind of issues we can make and also the risk factors.
Is this an indication to the domestic banks to lower the interest rate because if you’re going abroad to raise more resources, the banks here will have more funds to lend?
I think what your question is can be related in a manner prescribed as the SLR limit and now the liquidity ratio limits. Even now, the banks tend to hold more than what is the statutory or regulatorily required. They do it for a couple of reasons. First, if they don’t want to expand lending they find safety in the government papers by interest so that is what makes them invest.
Availability of the various players or various subscribers also is an issue. So, as we expand the universe of the demand or to say those who will subscribe to our paper, the necessity of the banks to hold little over than what is the minimum requirement will reduce. So it is possible that with this, the banks may also hold, but if they find relatively the investment in G-Sec to be more advisable or favourable, or at least up to the extent of the regulatory requirement, they may continue to find demand for this purpose.
The term of the first inflation targeting is going to end next year, can we expect some revision? As of now the band is 2-6 per cent (4 per cent with two per cent movement in both the direction). For sometime now the rate of inflation has been below 4 per cent.
The next review is due in 2020. At that stage certainly a careful study will be made. This is for the first time in India that we are having a monetary policy based inflation targeting regime. So, all aspects of it will be studied.
There is some confusion regarding nominal GDP growth data in the Budget documents — one document says 11 per cent while another page says 12 per cent. What is the actual number?
The data of nominal GDP growth rate in Budget at a Glance is based on the advance estimates released in January, which pegs the GDP of 2018-19 at a little lower level, whereas the provisional data which was released on May 31, the GDP went up by something like ₹2 lakh crore. So 11 per cent is the right increase, which is half a per cent less than what was taken in the Interim Budget. So, forget 12 per cent.
The Budget has estimated to get ₹90,000 crore as dividend from the RBI and nationalised banks. The Jalan committee’s report is expected this month. Can we expect higher receipt?
The Budget Estimates are only for current year surplus. It has nothing to do with what the Jalan Committee would recommend. So that has not been taken into account.
Fiscal deficit target has been lowered. Are there any reasons for this?
First, it is not a 10 basis point reduction. What happens is, if we put this number in single digit after decimal so 3.4 or 3.3 there is a 10 basis points reduction. But when you expand it to two digits, then it should mean less than 10 basis points. The Budget Estimate number was 3.36 and now it’s 3.32. So convention is that if it is 3.35 or more, it is rounded to 3.4. If it is 3.4 or lower, it is rounded to 3.3. It means actual reduction is only 0.04 which means four basis points and not 10 basis points. It is not such a drastic reduction.
After doing the exercise, we found that it is possible to be brought down, I think adjustment is only about ₹5,000-6,000 crore. So, there is no real consolidation, it is more of right marksmanship.
Do you think the crisis has bottomed out for the NBFC sector? Also some more powers have been given to the RBI to regulate NBFC.
The RBI will now be in a position to change the director, change the entire board of directors, supersede the board by an administrator and have several such regulatory powers. It will be able to do resolution of the NBFCs which might mean amalgamation and mergers. There will be resolution power to create bridge institutions.
There is a proposal to create a social stock exchange. What is the need for that?
This is a new concept. Some countries have already created this. Social ventures will be able to use or raise funds from interested investors using the stock exchange platform. The trigger was some good practice which we saw in some other countries. In our country, social entrepreneurs are not able to raise funds in this manner, whereas now it is possible to do it. So why not provide them a platform which will help them raise money in a more easy and secured manner.
What is the average price of crude and exchange rate to calculate various numbers in the Budget?
I have been saying this that we don’t actually take any particular value of crude. We are not required to as no expenditure head of the government is linked directly to the crude prices. There are only two expenditures, which in a way have direct relationship. One is the LPG subsidy and the second is the kerosene subsidy. Kerosene subsidy is practically on its way out.. very little is left. Gas prices don't move in tandem. So we actually don’t require the average price.