'We Are Trying to Spend Money in a Way That It Boosts Everybody's Income'

This year’s Union Budget announced many measures such as higher capital expenditure, a new cryptocurrency tax and revised disinvestment targets, among others. Some of the key officials behind the Union Budget of 2022-23—Finance Secretary T.V. Somanathan, Revenue Secretary Tarun Bajaj and DIPAM Secretary Tuhin Kanta Pandey—throw light on these aspects in detail and also talk about the revival in the private investment cycle, the sale of Air India to the Tata group, and Life Insurance Corporation of India’s forthcoming initial public offering (IPO) in an interaction with Business Today’s Siddharth Zarabi. Edited excerpts:

Why are you not distributing cash at least to those who need it?

Somanathan: We are not distributing cash but we are spending a lot of cash which gets into the pockets of [the] people. We are trying to spend money in a way that it boosts everybody’s income. We are zeroing in on giving a lasting increase in income and not a temporary transfer of cash.

The government has declared a capital expenditure of Rs 7.50 lakh crore. What is the philosophy behind not distributing cash?

Somanathan: Why are we pushing a big increase in capital spending instead of making larger cash transfers? Firstly, we are giving huge transfers in terms of food. We have given free food of about 25 kg to every one of the 800 million beneficiaries who are in the public distribution system. And that is targeted directly at the poor. So, that is not cash transfer; it is income transfer. It is over and above the normal public distribution system.

Why are we doing capital expenditure? Capital expenditure of Rs 1 spent by the government according to econometric studies produces somewhere between Rs 2-3 of GDP over 1-2 years. On the other hand, revenue expenditure like cash transfers of Rs 1 produces somewhere between Rs 0.90-0.99 of GDP growth. If we are looking to revive growth and help everyone in the country, including the poor or needy, it is much better to focus on the most growth inducing type of expenditure which is government infrastructure expenditure. That, we believe, will provide the best amount of cash in everyone’s hands in the economy.

Is Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), the rural employment guarantee programme, not a capital expenditure in that sense? Does it not create enough assets that you have crimped spending on it next year?

Somanathan: MGNREGA does not create durable assets. It is primarily a demand-driven programme where if a group of workers demand work then one is obliged to provide them with 100 days of work. The nature of the work is secondary. This is a wage employment programme, not an assetcreating programme. We have spent Rs 98,000 crore in the current year against the budget of Rs 73,000 crore because the demand has been higher than normal. If the economy will do better, we expect the demand for this scheme to be lower. It is not a substitute for gainful employment. It is a relief measure. The quantum of the relief measure will depend on the stress in the economy. If stress is lower, then the requirement will be lower.

There have been so many discussions on the 30 per cent tax on crypto assets. The crypto industry has expressed hurt that you have taken this cutting edge technology and lumped them with gamblers or horse racing. How would you respond to that?

Bajaj: My response to that is we all pay 30 per cent marginal rate of tax on our incomes. I’m sure you don’t equate us with the adjective ‘gamblers’ which you used. The point is very simple: we don’t see much economic value. If they [crypto industry] are trying to talk about the underlying technology, even the Reserve Bank of India (RBI) currency that will come out will use the same underlying technology. Our idea was to tax it at the highest marginal rate. Somanathan: Blockchain technology exists not only because of crypto assets. It is a separate technology.

We are already using blockchain technology to identify the geographical indicator of coffee in the Coffee Board. There are other uses for blockchain [as well]. It can help you trace where your coffee came from a particular field from Karnataka and sell in London for a premium. Then you need identification. There is a pilot scheme in the Coffee Board which does that. Similarly, blockchain will be used in the digital currency that the RBI will be using. Therefore, connecting blockchain technology with crypto is not correct.

Is it possible to put all land records on the blockchain, which can never be altered?

Somanathan: It is theoretically possible. If all the original records are correct, then the transfer of records could be put on a blockchain. But our challenge is to get original records correct. There is a specific reference to better land registration systems in this Budget including software whereby you can sit in one city and buy land in another city online and transliterate documents from one Indian language to another, because many land records are in local languages. The direction of improving land records is important. In the distant future, there could be a blockchain system for it but not in the near term.

Why aren’t you planning to sell enough next year under disinvestment?

Pandey: We have collected Rs 40,000 crore as dividend. So, money is money. It comes from different directions. Second, we have been realistic about what we can do. Divestment is a two-way street. If we have to sell, then others have to offer [to buy] as well.

What was so special about the Air India deal?

Pandey: Most of the Air India debt was guaranteed by the government. It was like sovereign debt in one sense. If Air India fails to pay, then the government has to pay. It was different from other debt which is non guaranteed. We had actually come out with open bidding. Our bid parameter was, you bid for equity and debt as enterprise value put together. It was a debt that was obtained from the bid. It did not succeed the previous time because of the fixity of debt. The debt which is unsustainable has to be taken out as there are no underlying assets to it. We have saved Rs 20 crore a day from the Air India deal. It is a big saving for taxpayers’ money.

Why has BPCL not been sold so far? Is it on the back-burner?

Pandey: It’s been really caught up in energy transition. We had the bids but we want them to come ready for the financial bids, and we are getting a little pushback on this. We need two hands to clap for the bidding process. It is a bit of the oil sector and the coal sector and the carbon economy and so on. The ticket size is very large in this transaction. It is not on the back-burner. Our structure of the transaction is very conducive to divestment. That is how we go to the market.

You are giving too much to capital expenditure but if you net it off, it is neutral. People need immediate relief but you have turned off the tap on social sector spending. You are not looking at demand. You have a long-term plan called infrastructure development. Why so?

Somanathan: If you look at the Budget numbers, the aggregate spending by the government has increased substantially on capital expenditure. There are certain offsetting reductions in one area which is the National Highways Authority of India (NHAI) whose borrowing next year will be lower than the current year.

On the other hand, there is an increase in government expenditure in every other sector. It is not accurate to say that government capital expenditure increase is offset by a decrease in other sectors. I have seen some figures floating around but they are based on a misinterpretation of some of the data.

Why is there an 18 per cent GST on health insurance when the government is encouraging it? Is there a philosophy? Or are you timing it for some future event?

Bajaj: If I understand correctly, you meant why did you not get a tax break. We have data for 2019-20. There are about 63 million people who pay taxes to the government. Out of this, 75 per cent show an income of Rs 5 lakh and below. This means they are not paying taxes. That leaves about 15 million. With the kind of exemptions that we have built in our Income Tax Act, people who have Rs 8-9 lakh of income and if they take benefit of exemptions, they would not pay any tax to the government. So, that would come to 88-90 per cent of people. Around 10 per cent or 6 million taxpayers—which also includes the corporate sector which pays a substantial amount of total taxes.

You have got two kinds of returns; one is with exemption and one is without exemptions. What we want to do is to wean away people from with exemptions to without exemptions. Whatever relief you give in this pandemic year your resources would suffer to that extent. Not only the benefit will go to people that it should be going, it will also go to the people who already don’t need the benefit because they are not paying any taxes. That was a big dilemma we faced. What should we do? If we leave out these resources, capital expenditure will suffer.

We are at a stage in our economy where we would like our GDP to grow. The GDP figures will, if we do more of capital expenditure. The multiplier effect of capital expenditure is much more than revenue expenditure. Revenue route benefits a small number of people. Let’s try to push the economy further. Once we are able to do that you will see GDP, revenue and income of the people grow. By then we will have more data and changes in taxation structure can wait for the future. There is always hope.

Where does the Great Indian IPO of LIC stand?

Pandey: The public offer of Life Insurance Corporation is slated for March 2022. We are counting it for the current financial year. We have policyholders and by law, we have policyholders’ reservations in the forthcoming public offer, which is a unique thing.

Policyholders have blessed this organisation for a long time. We want them to be shareholders. They will also be offered discounts. There will be a huge number of retailers. If everything goes well, it will be a big moment for the Indian stock market as a massive market capitalisation is coming to the domestic equity market.

Will LIC be among the top three companies in terms of market cap after it is listed?

Pandey: LIC’s embedded value is upwards of Rs 5 lakh crore once listed. I think people can make their guesses. Once the DRHP is filed, the price will be discovered over a period [The DRHP was filed on February 13, after this interaction took place]. There is a tremendous amount of interest from the general public.

Why is the central government doing the heavy lifting? Why is the private sector not coming forward?

Somanathan: Until we got into the pandemic, we were subject to a twin balance sheet problem. The corporate balance sheets were stressed and banks’ balance sheets were also under stress. The corporates could not borrow and banks could not lend. So, that was the reason for slow private capital expenditure. One of the good things that happened in the last two years is both sets of balance sheets look considerably better, for most companies as well as banks. I think the condition is right for the revival of private capital expenditure. The time has come to embark on capital investment and hopefully that will include the hospital sector where there is ample provision of credit under the ECLGS (Emergency Credit Line Guarantee Scheme) scheme specifically for hospitals, districts and soon. We may be at the right point of time where it could pick up.