Will meet disinvestment targets by March 2018: Sanjeev Sanyal, Principal Economic Adviser
We will be able to meet the fiscal deficit target of 3.3 per cent by making certain adjustments on different fronts, Sanjeev Sanyal, Principal Economic Adviser, Ministry of Finance, told Anil Singhvi of Zee Business in an exclusive interview, adding that the public sector banks will be recapitalised after their cleansing process is completed under the prompt corrective action (PCA) framework.
Sanjeev Sanyal, Principal Economic Adviser, Ministry of Finance, in an exclusive interview with Zee Business's Anil Singhvi said we will be able to meet the fiscal deficit target of 3.3 per cent by making certain adjustments on different fronts. He added the public sector banks will be recapitalised after their cleansing process is completed under the prompt corrective action (PCA) framework. Here are edited excerpts:
Q: RBI in its effort to kill inflation has increased key policy rates, which would hit government's efforts to bring growth rate back on track.
A: No, I feel the independence granted to the central bank in its functioning has helped us in containing inflation rate at around 4 per cent, which is the lowest in many decades. In fact, the argument between RBI and the finance ministry is a good sign from the economy and such arguments can be seen across all economies. The tension between the two helps in maintaining a balance between the economy and growth.
Q: Do you think that the government will be able to meet the fiscal deficit target of 3.3 per cent with ease? At least in the changed conditions, where crude oil prices are high, RBI has increased the key policy rates and the government wants to increase the minimum support price for crops to 1.5 times of production costs among others.
A: This is not something new and every Finance Minister has to face such challenges. In fact, we think about such situations while preparing the annual budget.
See, its true that the interest rates have been increased and this is happening across the world and the crude prices have skyrocketed to about $75 per barrel, which is more than what we had put in our estimates. These factors will put pressure on us. However, the growth rate of 7.7 per cent, which is above our expectation is something that is balancing the problem.
But there are certain challenges where we will have to think about the trade-off and we were thinking that we will not be able to spend this much on this and that. Such adjustments will be done on every front to make sure that we are successful in meeting the projected fiscal deficit of 3.3 per cent.
Q: Interest rates on the government securities that are issued every 10 years is around 8 per cent. Similarly, the development loans taken by the states is charged between 8.35-8.50 per cent and same will happen if I take a home loan today, where the interest rate will be between 8-8.5 per cent. What is a reason behind this mismatch? Why are Sovereign borrowings kept at such high rates? Can the rates be reduced and what are you doing about it?
A: Structural reforms are needed on this. There are many reasons for this mismatch like the absence of a stable sovereign yield curve and changes are needed to manage the same. These changes are going to be long-term reforms and we are working on it. For the purpose, we will have to make it risk free and there are many ways to do it, .i.e. we will have to give issuance at one point.
At present, we issue them at an interval of 10 years but it is not a regular practice. At times, they are issued on a gap of 5 to 13 years, which means the investors are not aware of the time when they will be released. The process has been in practice for quite a long time. However, the market has been asking us to regulate it and we are working on it.
Apart from this, there are certain bonds in form of that are lying idle and no one is interested in buying them.
Secondly, when it comes to buyback and switch, .i.e. there are certain bonds that are lying idle and no one is interested in buying them. Reserve Bank or the government plan to buy back such bonds and reissue them in form of liquid bonds. This a complete technical relationship with the market and should be managed. It is not that we have changed the rules to end the problem. It is a continuous process and I am aware of it and I have worked for continuous 25 years of my life on it. It is not a big thing and we will be able to manage it in the same way as it is being managed across the world.
Q: Undoubtedly, you have initiated the process to bid goodbye to the problem of bad debts, which was available at the banks. But this process has given birth to a new problem in which the books of banks are being cleaned, .i.e., the book value of the banks is going down and banks don't have enough money to do business. When are you going to start the process of allocating money to the government's banks and what will be the process of allocation?
A: It is a pertinent issue. First thing is, they will get some money once the auctions are completed. Secondly, we have announced the plan of recapitalisation of the banks but all banks are not in the condition that they should be recapitalised, so we are working on a plan to bring a change in their HR and management of these banks. Yes, the process will be done in a slow way.
But first of all, they should be brought under some control through regulations and it is being done under prompt corrective action (PCA) framework. They are being cleaned. Their management will be improved and brought under the control of the regulations after the cleansing process of these banks are completed.
There are some banks like State Bank of India (SBI) that are capable of doing business at present. But, when it comes to small banks than there can be mergers and consolidations in some cases. This is not a scientific process but it is an art.
Q: There is a problem related to crude oil prices and it has an impact on the cost of petrol and diesel in the domestic market. The prices of the fuel go up when crude prices are hiked in the international market and vice versa when prices go down. This makes for a fight on two fronts and they have to manage the entire balance sheet amid weakening value of rupee so that it doesn't have any adverse impact on the economy of the country and the harsh impact of the same on the people. How are you maintaining the balance between the two?
A: Even I am a customer and I can understand their pain. Prices are increasing due to taxes being imposed by the states and the rate hike in the international market. Interestingly, when it comes to taxes then the maximum taxes are enforced by the states in form of VATs and other taxes, while the central tax remains a fixed one.
Cut in the central taxes may lead to a reduction in defence purchases or not providing the announced rates to the farmers. This is a reason that we haven't been able to reduce or bring a big change in the prices of the fuel. In fact, it is not a technical decision it is a political decision.
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Q: My next question is related to disinvestment. When and how the process of disinvestment will be started? And do you feel that you will be able to meet the projected target of disinvestment by March 2019? At least, when the there is a trade war at international level and it is going to be an election year at domestic level and the government has failed to get a bid for Air India.
A: See, we have the faith that we will be able to do something along the lines of disinvestment. I know, that our plan of disinvestment of Air India has not worked, but we will work on the proposal and come back with certain amendments. In addition, we are committed and are working to meet the disinvestment target.