05 Feb 2018 13:51 IST

‘The 3% fiscal deficit target may be met even by 2019-20’

Move to consolidate FPI in debt; policy on gold soon: DEA Secretary Subhash Garg

Stressing that the government has been committed to fiscal discipline and has been delivering on that front, Economic Affairs Secretary Subhash Chandra Garg said that there is a “one-year pause” owing to structural reasons.

In an interview to BusinessLine, Garg spoke of the many proposals announced in the Union Budget 2018-19, including plans for the corporate debt market and eliminating crypto assets. Excerpts:

Many analysts, including Fitch Ratings, have raised doubts about the fiscal consolidation targets, given that the target of 3 per cent fiscal deficit is now deferred till 2020-21. Are their apprehensions valid?

That is the stated goal, but we might end up achieving it sooner. We have stated fiscal deficit of 3.1 per cent (of GDP) in 2019-20. This is very close to 3 per cent. So, depending on the situation next year, when we draw up the Budget, you might see 3 per cent being achieved in 2019-20. It is not at all a long path. This one-year pause is due to many structural reasons. But the government is committed to fiscal consolidation and has been delivering on it. In the last 13 to 14 years, we have never been close to the 3 per cent target except in the year 2006-07. Even in that year, the Central government was not very close.

What is the roadmap for reducing the general government debt to 40 per cent?

The general government debt has many elements. One which is in control of the government is to reduce the fiscal deficit and borrow more. But there are also several elements like GDP growth because the ratio is debt to GDP. So if the GDP grows more, the ratio comes down. The GDP which is important is the nominal GDP and not the real GDP. We don’t really want that because it is linked to higher inflation. That’s not the idea, but it is an important part of the exercise. How all these factors move in the next five years will decide the path of consolidation. The government has stated that it wants the debt to come down to a reasonable level.

The Budget announced a proposal to nudge companies to borrow more from the bond market. How will that be done?

Our country has a bank-focussed lending system. Our bond markets have developed, but they are still a relatively smaller source of providing funding to the corporates. So there are quite a few announcements to make the bond markets better and bigger vehicles for corporates to raise funds. One of them is to get SEBI to nudge them into raising one-fourth of their fund requirements from the corporate bond market.

The other important one is to relax the rating requirement and make more corporates eligible. Today, the restriction on AA makes very few corporates eligible to raise funds from the bond market, because investors such as LIC and Provident Fund cannot invest due to the regulatory restriction. We must remember that A is a very major investment-grade ranking.

What is the government’s overall plan for the corporate debt market?

We are thinking of consolidating the foreign portfolio investment in debt, we expect some review of the ECB policy, FPI limit and investment in government security. Domestically, these are some of the measures. We can even think of framing a corporate debt policy as there are some segments that require attention for deepening it.

The Budget has spoken about eliminating crypto currencies in the country. How will that be done?

We have used the expression crypto assets very deliberately as we don’t treat them as currency. We don’t see any role for crypto assets to work as crypto currency. Their use in transactions and payment systems would be completely eliminated. We are deliberating and discussing how other uses of crypto assets are used should be regulated, controlled and eliminated and who should actually do that. We will come out with a policy soon.

There are a lot of proposals on gold trading in the Budget…

Some elements of the proposed gold policy have been spelt out, including establishment of exchanges in the country, standardisation of gold as a product, development of gold as an asset class, creating facilities like gold deposit accounts, and other elements would also be firmed up. India has such an enormous amount of wealth stocked in gold, but that doesn’t get financially used. It’s an asset which remains locked up in unproductive use.

It is also a risky way of using gold as an asset. We want to financialise it in a way where people can get all benefits of gold as a financial product rather than holding the physical product in inefficient ways like jewellery. We are looking only at the investment-related aspect of gold. Jewellery has a legitimate role, and that remains, but people also store gold jewellery as an investment.

What is the crude oil price used for Budget estimates?

We don’t need to take any specific crude oil price as it doesn’t figure directly in our calculation. LPG is the gas price.

The crude price gets factored into only the oil subsidy and that is not there now. If we believe it is going to a level where it is becoming uncomfortable and the government has to provide some intervention, that’s when we factor it in.

(The article first appeared in The Hindu BusinessLine.)