New Delhi, Chief Economic Advisor Krishnamurthy V. Subramanian on Thursday said that the government should look at raising capital from low interest markets like Japan and the European countries to lower the fiscal deficit, while non-tax revenues like disinvestment have significant scope to be expanded.
He also said that given the weakness in indirect tax revenues, the Centre should look at raising more non tax revenues like divestment.
“Non-tax revenues have significant potential to expand. Many PSUs are sitting on large pools of land which can be monetised and there is opportunity from greater returns from divestment. A lot more money can be raised from divestment,” Subramanian said in an interaction.
“The divestment target is actually expected to fill in some of the gaps that the tax revenue is leaving. In the current year, the divestment target is Rs 90,000 crore,” he said.
He said that tax revenues themselves depend on growth.
“Last year the growth was 6.8 per cent and the buoyancy in indirect taxes was not that great. Once the tax concessions given last year (through GST) are streamlined, indirect taxes buoyancy should improve,” the CEA said.
He wants the government to look at low capital cost countries to raise funds and this is the right opportunity with strong macro statistics.
“We have close to 7 per cent on average growth, inflation is 4 per cent, there is macro-economic stability. We are following fiscal deficit path where are now at 3.4 per cent from 5.6 per cent. Oil is at $65 and our projection is that it is not going to be too bad. The opportunity is if you look at Japan or Europe, the cost of capital there is at negative interest rates,” he said.
“Our primary deficit is close to zero. Interest payment accounts for a large proportion of our fiscal deficit. So if we can reduce our interest cost by borrowing for instance in yen, then it will be beneficial to us. If our economy grows at 8 per cent, because of structural reasons, Japanese and the European economies may not be able to grow at these rates, then we may have to pay less in yen and foreign currency terms in obligations.
“This is a real opportunity to borrow at low interest cost and also possibly having to pay a lower principle because of the currency appreciation of the rupee in terms of these currencies. Since the interest component of the fiscal deficit is usually high, then we reduce fiscal deficit by such capital,” the CEA said.
He observed that there would not be any downside to the 7 per cent growth in the current fiscal despite the geo-political turmoil.
“The 7 per cent growth for the current fiscal has already accounted for the factors like US-China trade war and US-Iran dispute which can move up oil prices or the subdued export scenario. There is no further downsizing the target of 7 per cent due to this.
“Some of these factors do affect our current account deficit but given the FDI flows that are coming in… the uncertainty has now gone down and foreign capital is looking for avenues to generate high returns where India is an attractive spot. FDI and FPI path both look good and there is not much concern on the current account deficit,” the CEA said.
He added that the economic survey is a big picture blueprint to hit the 8 per annual growth rate and become a $5 trillion economy by 2025.
Even as headwinds continue to hurt various sectors especially manufacturing, the Economic Survey has projected India would grow at 7 per cent in 2019-20.
The forecast has come close on the heels of India registering slowdown in the last four quarters with the January-March period recording the slowest pace in last five years.
“The year 2019-20 has delivered a huge political mandate for the government, which augurs well for the prospects of high economic growth. Real GDP growth for the year 2019-20 is projected at 7 per cent, reflecting a recovery in the economy after a deceleration in the growth momentum throughout 2018-19,” the Economic Survey 2018-19 said.
Maintaining that both downside risks and upside prospects persist in 2019-20, it said that investment cycle is expected to pick up in FY20 on the back of higher credit growth and improved demand.
Further, the accommodative monetary policy is expected to reduce lending rates provided the transmission mechanism improves. The decline in NPAs as a result of resolution of stressed assets is set to push the capex cycle.
The Modi government’s flagship economic document said that political stability in the country should push the animal spirits of the economy, while the higher capacity utilization and uptick in business expectations should increase investment activity in 2019-20.
