'Economy Will Rebound Next Year'

In an exclusive interview with BW Businessworld's Suman K Jha, Union Finance Secretary Ashok Lavasa holds forth on a host of subjects — from the Union Budget to demonetisation — , and says, among other things, that the DIPP may soon play the coordination role that the FIPB did while attracting FDIs.

Excerpts:

Universal Basic Income (UBI) is a much talked about scheme in the country today. Do you think it's an idea whose time has come?
As has been pointed out in the Economic Survey itself, it's an idea whose time has come for deliberations. The objective is efficient targeting of financial support which the government gives. It's something worth discussing. The purpose of UBI is that in the entire delivery chain, of providing various services to the beneficiaries, how to ensure that the maximum benefit is derived by the beneficiary himself. This is something that has been discussed for many years. Many alternatives have been tried.

Even if you look at the direct benefit transfer, it's a step in that direction. How do you ensure that the benefit reaches the person for whom it's intended; how do you ensure that you have the least cost in delivery; how do you ensure that there are no ghost beneficiaries etc.

Is it alright to assume that the UBI may be incorporated in future budgets?
This is something that will involve a lot of deliberations. It means that you discuss this idea with all those who participate in the resource transfer. All those who have a stake in the resource transfer. What shape would this idea take if this were to be converted into a scheme? Ultimately ideas get implemented through schemes. And the scheme must have a well-understood form and format. Unless that is worked out, it's not possible for anybody to say when this will happen and how will it happen.

Phasing out subsidies and replacing them with one common UBI - is that an ideal one could look at in the future?
I don't know if it's an ideal. And I don't know the entire international experience surrounding this ideal, as you call it. But I do know that there are various ways through which you can minimise the transaction cost. You can attempt prevention of leakage. And yet hope that the benefit goes directly to the intended beneficiary. And that he derives maximum efficiency out of it.

Take the case of Direct Benefit Transfer. In the direct benefit transfer, by the use of technology, you have been able to eliminate many ghost consumers. You have been able to eliminate many ineligible beneficiaries. And thereby bring down the cost of the scheme and the delivery mechanism.

In a country as vast as India, one should look at several alternatives. And the UBI is one of the alternatives that should be considered.

In this Budget fiscal deficit target has been kept at 3.2 per cent. Some feel you would have got more window had you kept the target at 3.5 per cent. Do you think the argument has some merit?
3.5 per cent is the target that we had for 2016-17. Continuance of 3.5 per cent for the year 2017-18 would have meant that we are not going forward in the past of fiscal consolidation to which the government is committed.

That is the key objective of the FRBM Act.

But there have been occasions in the past where fiscal deficit could not be maintained. In the last three -four budgets you find that there is a consistent effort to bring down fiscal deficit. And more that the declaration of intent, there is a commitment to adhere to the intent. In that sense the movement from 3.5 per cent to 3.2 per cent in a forward move in that direction. It doesn't take too much of calculation to show that the 3.5 per cent would have given us additional money to spend. But whether that would be treated as a forward step -- that is a moot point. What we have been able to do through this budget is that we found additional resources for developmental expenditure. At the same time maintain our commitment to the direction of fiscal reforms.

The FRBM panel whose report is still under consideration - they have also talked about a trajectory. The glide path which the panel has recommended it suggests a pause for a few years, after reaching 3 per pent, then it talks about a reduction by 0.2 per cent annually, till 2023. So the decision of the government at this point in time is quite consistent with that approach.

New schemes have not been announced in this budget. So, is the future roadmap all about consolidation?
The approach of consolidation applies as much to achieving fiscal discipline as to the developmental objectives. The government has tried to allocate resources to such schemes which have picked up a momentum in implementation and the gains of development and maximum benefits go to the people for whom the schemes are meant.

If there is one sector hit hardest by demonetisation it's agriculture and rural economy. Do you think enough has been done for the sector in the budget?
The impact of demonetisation on the agriculture sector and the rural development and economy has not been quantified so far. Most of what is comes from anecdotal or emotional response.

But if you look at some of the statistics on ground, say, the sowing in rabi, that has grown. The forecast of rabi production is also very high. After many years agriculture will cross 4 per cent growth.

Having said that what is important is what is the government doing about the rural economy.

Let's look at one or two things about agricultural crops. The pulses production has shown a significant increase. Both in the area sown and the production that has come in markets and that is anticipated for the rabi in the markets.

Government has put in place a MSP regime for pulses' procurement. Now we are in the market for procurement of pulses.

When the budget for 2016-17 was made, virtually there was no allocation for procurement of pulses. But as the year went by, we have provided for Rs 3000 cr for the procurement of pulses. Today you have a stock with the department of consumer affairs exceeding 6 lakh tonnes of pulses. The effect of which you can see in the market that the prices of pulses have dropped sharply. Whereas the retail process had gone up in the past.

Secondly the target of Rs 10 lakh crore for agriculture credit. That will ensure that adequate credit is available for farmers for undertaking their farming activity. Even the setting up of funds like the micro irrigation fund that is a step that will build on Rs 20000 cr of LTIF which had been constituted in the past. The Government is keen on laying down big infrastructure for irrigation which we will do through LTIF and now stepped into micro irrigation so that the scheme of more crop per drop is realised.

Then you look at some of the reform measures that have been taken in the agricultural sector. Government wanting to create a model contract farming law and persuading the states to adopt that is one of them.

Then on the allied sector, there's an increased allocation to the white revolution to promote the production of milk. There's a separate fund created for the dairy sector. RS 8000 cr fund to revamp the milk processing plants. These are very big steps for the allied sector. The third one is for the blue revolution which is a higher allocation to the fisheries sector.

A number of ways have been spelt out by way of reforms and heightened allocation given to the agricultural sector.

Then if you come to the rural development sector, for direct employment schemes, MNREGA has received Rs 10000 crore of funds more. We have now provided Rs 48000 r of funds for MNREGA. Even in MNREGA the government has not lost track of the reforms required. Increasingly more number of women are finding employment in MNREGA. And more durable assets are being created. Government has already started geo-tagging all the assets created in MNREGA.

Then there are three or four major thrust areas that will help the rural economy. One, Pradhan Mantri Grameen Sadak Yojna. For which there is an allocation of Rs 19000 crore. We hope to complete this scheme in 2018-19. Then the Pradhan Mantri Grameen Awas Yojna. The rural housing programme has got one of the biggest boosts and the allocation has gone up to Rs 23000 crore from Rs 15000 cr. This will also create employment and improve the quality of life. Then the rural drinking water supply scheme. There's a separate mention of dealing with the arsenic-contaminated water in 2800 villages.

Apart from these the ongoing programme of rural electrification - to complete the goal of electricity for all by 18-19, we have made additional allocation for that.

Finally the Bharat Net programme. To provide telephone connectivity in the rural areas. There is an increase in allocation by almost Rs 10000 crore. Last mile connectivity and laying down infrastructure for DBT will thus be ensured.

What next on demonetisation?
A couple of things. One the shift to financial transactions will happen in a transparent manner. Apart from increasing the tax base, it will also improve behaviour among the citizens and it will help us in becoming law-abiding society. This is one big benefit and trend that I can foresee.

The other of course is that by depositing the money in the banks, people are saying that whatever money we had in the formal system and we are ready to account for it. This tendency to declare their income will lead to the deepening of tax base. This is one the goals of the country as we move towards being a middle income country.

Some people talked about a boost to the GDP In the long term. Would you subscribe to that?
Certainly. If you see all the forecasts that have been made about Indian economy - everybody is unanimous in the view that the next year the economy is bound to rebound, and show a growth rate which will be higher than this year.

The world over there is a consensus that India continues to be a bright spot in the world economy. Even as the world economy is sluggish and very slow in recovery, people have lot of confidence in the potential of Indian economic growth.

The FM talked about FDI reforms. Can you tell us a little more about the FDI reforms?
About 93 per cent of the FDI comes through the automatic route. India is one country where the most liberal FDI policy is followed. There is a negative list, which is a short list. There are a number of sectors, where for beyond certain figures, you have to come through the regulated route. The FIPB which has been in existence for about two decades has served a very important purpose, in attracting, regulating FDI in various sectors. India is the country which gets the maximum FDI.

As you move forward, the government feels that perhaps there is no need for the FIPB. The role which the FIPB played can well be played by other entities which exist in the system. The government has already declared its intention to do away with the FIPB.

As long as approvals are required, and the law of the land is followed, someone has to give permissions. The permissions were not given by the FIPB, they were only being coordinated by the FIPB. The feeling in the government is that we can remove this additional layer and let the approvals be done by the administrative departments, and if there's coordination to be done it can be done by the DIPP. The contours of the alternative arrangement will be brought out soon.

The FDI policy is a dynamic instrument. The government doesn't wait for the budget as far as the FDI Policy is concerned.