‘We can go somewhere between 35 per cent and 40 per cent.’
IMAGE: Finance Minister Nirmala Sitharaman arrives with Reserve Bank of India Governor Shaktikanta Das to attend the customary post Budget meeting with the RBI board of directors in New Delhi, February 14, 2022. Photograph: Shrikant Singh/ANI Photo
Dr C Rangarajan, former chairman of the prime minister’s economic advisory council and a former governor of the Reserve Bank of India, tells Indivjal Dhasmana that the Budget has erred on revenue projections on the lower side.
Nominal economic growth, Dr Rangarajan says, would be close to 13 per cent instead of 11.1 per cent assumed in the Budget even as real GDP growth may be 7-7.5 per cent instead of 8-8.5 per cent projected in the Economic Survey.
The Budget is relying on capital expenditure (capex)-led economic growth. How do you view this strategy?
The emphasis on increasing capex is a directional change.
We really need to raise the government’s capex and lower revenue expenditure.
Of the total fiscal deficit in the Budget, 45.2 per cent will be towards financing capital expenditure.
There are competing demands as we are emerging out of Covid-19.
A critical issue is how do we raise income levels and, therefore, consumption expenditure for those severely affected.
I think the government must address it.
Healthcare expenditure went up very substantially, including spending on vaccination, in the current financial year.
Hopefully, the government will maintain healthcare and related expenditures at the level or higher than what it was in the current financial year.
I believe there is additional fiscal space available and the possibility of raising overall expenditure remains.
The Economic Survey pegged the real GDP growth rate at 8-8.5 per cent and the Budget assumed nominal GDP growth rate at 11.1 per cent for FY23. Are these numbers realistic?
I have my reservations on 8-8.5 per cent economic growth. I think it is a very optimistic estimate.
In the second half of FY22, the rate of growth was only 5.6 per cent, when there was no base advantage.
Expected jump from 5.6 per cent to 8-8.5 per cent appears to me a big leap and may not necessarily happen.
I would say a growth rate of 7-7.5 per cent may be more realistic.
Nominal GDP growth rate of 11.1 per cent assumes a very low level of inflation.
I don’t think this will happen either. Inflation level will continue to remain high. I would say close to 6 per cent.
I, therefore, will put the nominal growth rate of the economy at somewhere around 13 per cent.
Calculations in the Budget would have been better if they had been predicated on the assumption of 13 per cent nominal growth rate.
This will give a higher level of revenue projections.
It will, therefore, give additional space for expenditure too.
Income inequality has widened in India. Should the government have imposed a tax on the super-rich to reduce this?
There is a need to look at our income tax structure. We have several slabs. We have cess and surcharges on them.
I think we really need to get rid of all the cesses and surcharges because they give a wrong picture of the level of taxation.
More particularly, they deprive states of their share in revenues.
The time has come for the Union government to look at various slabs.
Perhaps instead of levying surcharge we can introduce another slab over and above what we have.
What should be the rate of that tax slab be — 35-40 per cent?
We have really moved to a reasonable level of taxation after liberalisation.
I will not venture the number today, but we need to talk about it.
Certainly, somewhere in the region that you are talking about is possible.
Thirty-five per cent or a little more than that can be done because right now cesses and surcharges tantamount that the topmost slab is more than 30 per cent.
I think we can go somewhere between 35 per cent and 40 per cent.
We need not touch 40 per cent. It can be little less than 40 per cent.
Will it not scare wealth creators?
This is a conflict that always arises. One has to strike a balance.
After all, some concessions were given in corporate tax two years ago if additional investments are being made.
The condition of starting production by 2023 has been extended by one more year now.
Concessions were given on one side for generating income.
There is always this conflict as to what should be the level of taxation once income is generated.
Hike in customs duty was announced on a number of products in the Budget for Aatmanirbhar Bharat programme. Is it the right strategy or accentuation of a protectionist stance?
I think this is a step in the wrong direction. There are circumstances where raising customs duty is warranted, particularly in the case of dumping.
But to go on enhancing duties Budget after Budget is almost reminiscent of Budgets before 1991. I think this is not appropriate.
I think we should really be able to compete in the market.
Over 40 per cent of the government’s revenues will go towards paying interest on debt in FY23. Does this complicate things for the RBI?
The RBI’s problems will be twofold. Irrespective of the level of interest rate, the extent of the borrowing is so high.
Without liquidity support from the RBI, the borrowing programme will not succeed.
The biggest gainer of liquidity expansion is the government even during the current financial year.
If year after year liquidity is being pushed into the system, it has an impact on inflation.
Second is a pressure that comes from what is happening in the rest of the world, which is saying that inflation has gone too far and therefore they are going to tighten monetary policy.
What shall the RBI’s reaction be if the rate of interest abroad rises? Can we remain not in sync with that? Theoretically, it is possible.
But it will have an impact in terms of funds either coming in or some funds even going out.
Therefore, the problem of rate of interest becomes relevant because major responsibility of the RBI is towards price stability too.
I will not be surprised if the rate of interest on the government paper goes up during FY23.
Feature Presentation: Aslam Hunani/Rediff.com
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