A K Bhattacharya: Hi, Subir, welcome to the Business Standard Web Chat on the Union Budget for 201516.

This is AKB here. What are your key thoughts on the Budget?
A K Bhattacharya: There are a few positive signals from this Budget - the second from Union Finance
Minister Arun Jaitley. One, the outlay for infrastructure has gone up by Rs 70,000 crore. This is a 37 per
cent jump over what was spent by the Centre this year. If you add a 34 per cent increase in the internal
and extra budgetary resources of public sector undertakings, the total increase in the Central Plan
Outlay goes up by 35 per cent. Compare this with a 30 per cent drop seen this year, and one sees how
more money hopefully in investment projects is likely to spur economic activity.
A K Bhattacharya: Second, there is a nine per cent cut proposed in the overall subsidies bill for next
year. The cut seems to have come largely from savings on fuel subsidies, more on account of lower
international crude oil prices, and perhaps less due to the impact of direct benefit transfer schemes in
operation for cooking gas. Also, there is no benefit to be seen on the food subsidy front. So, what could
have been a year of major savings on the subsidies front, the actual cut proposed is quite small at only
8.6 per cent. But still the subsidies spend as percentage of India's gross domestic product should come
down to 1.7 per cent, compared to 2.1 per cent in the current year. The gain on this front should be
noted.
Subir Gokarn: Hi AKB, sorry for the response lag, but I am now logged on. Overall, I think this budget
met my expectations in terms of a number of criteria. There are, of course, many questions still to be
answered, but that is usually the case. If I am to highlight one point, it is the national Infrastructure and
Investment Fund proposal. I believe that it provides the best way to balance the compulsions of fiscal
consolidation and the crying need for more public funds flowing into infrastructure. The direct tax
reform proposals are also a positive step; they could have been more ambitious, but at least we have a
4-year commitment to phase out exemptions, many of which are archaic and move to a uniform rate.
Subir Gokarn: On subsidies, I think that the major challenge is now to activate the direct transfer route.
The reference to J-A-M in the Economic Survey, capturing the Jan Dhan Yojana, Aadhar and Mobile, was
echoed in the budget speech and, if implemented effectively, this can significantly reduce the subsidy
bill both directly, through lower leakages and indirectly through lower delivery costs. It was prudent not
to take too much credit for this in the coming year, but I think this will be a major long-term fiscal
benefit.
A K Bhattacharya: Third, there are some signs of improved tax administration - an attempt at
rationalising some of the problematic tax laws that had cast an adverse impact on foreign investment, in
particular, plus a promise to postpone the implementation of the General Anti-Avoidance Rules for
taxation by two years. Now, there could be legitimate criticism that GAAR's postponement is an
admission on the part of the government at failing to reform the system of enforcing tax laws. But then
you also have the finance minister announcing that he would move towards implementing several tax
administration-related procedural changes improve the ease of paying taxes, as recommended by the
Some committee on tax reforms. Moreover, the tax to GDP ratio, after declining to a single digit for the
last couple of years at least, has now moved up once against to double digits - or a little over ten per
cent of GDP.
Subir Gokarn: I think some of these issues have to be seen against the backdrop of the four-year time
frame for terminating exemptions. A big part of the problems that the system creates for taxpayers is the
opacity and the consequent discretion that assessors have. We should take a holistic view of tax
administration; the simpler the system, the more efficient should be the administration. Also, the
incentives to evade will go down.
A K Bhattacharya: Thanks Subir. Better late than never, as they say. Welcome to the BS Web chat. Agree
with you on both your points. I am also inclined to see some positives in his conservatism on estimating
revenue buoyancy, which is recognising reality. In the current year, he paid the heavy price for having
followed his predecessor's guidance on revenue numbers and his revised tax collections suffered a
shortfall of around nine per cent compared to the Budget estimates. The Budget estimates had projected
a target of 18 per cent revenue collections growth. For the next year, with nominal economic growth
projected at 11.5 per cent, the finance minister is projected around 15.8 per cent gross tax revenue

growth, which is a sensible strategy, leaving perhaps some room for an upside benefit if the economy
grows at a faster rate.
Subir Gokarn: I agree. A little more buoyancy is reasonable to expect in a recovery phase. One could
debate the actual growth numbers but I think it is quite safe to characterize the economy as being in
recovery mode.
A K Bhattacharya: I see your point. The other big initiative is to go in for strategic disinvestment to raise
about Rs 28,500 crore. The finance minister does not explain what he meant by strategic disinvestment,
for want of which we could conclude that the government has at last decided to go in for strategic sale
of existing listed public sector undertakings to reduce its stake down to below 51 per cent. Is this
privatisation by a different name? We have to wait and see. But to my mind this has indications of a big
move. The caveat, however, is that there is no indication of the governments political resolve to back
such intentions. This year, the government fell far short of its target of disinvestment of PSU stake sale
to fetch only Rs 26,353 crore against a target of Rs 43,425 crore. Moreover, it did not move at all on its
plan to effect divestment of government stake in non-government companies or residual stake sale in
privatised companies. So, will the government fast enough to sell stakes in existing PSUs to fetch Rs
41,000 crore and in addition mobilise another Rs 28,500 crore through strategic divestment? Only time
will tell.
A K Bhattacharya: One area of disappoint could be the way the government did not live up to its promise
of pruning the long list of centrally sponsored scheme. There were earlier expectations that that list
would be reduced to only eight such schemes. But it seems the government retained as many as 63 of
them and provided an estimated Rs 23,869 crore for next year. Remember that this year, these schemes
got only Rs 4,586 crore, drastically down from Rs 44,111 crore spent on them last year. The new
frameworks details are not fully known and it would be interesting to see how their funding takes place,
though in many of them the proposed Central funding has been freed from any linkage to predetermined
end-use criteria.
Subir Gokarn: This is a really ambitious target, particularly in the context of the under-performance in
the current year. We are yet to see a clearly articulated disinvestment strategy from the government and,
in the absence of this, taking such large credit could pose some risks. On the other hand, with the
expenditure commitments being made to infrastructure, perhaps the government will put aside its
ambivalence and accept the necessity of raising a large amount through this route. If the use of the term
"strategic" implies that the government is willing to cede control, that would be huge step forward, but
also a serious organizational challenge. Let's wait and see!
Subir Gokarn: ON CSS, I think that we are in rather fuzzy territory. Of course, the government was aware
of the Fourteenth Finance Commission recommendations since December, so it had more than enough
time to assess their implications for the budget and act on some of them. To an extent, I believe that this
has happened through the reduction in the plan expenditure, which has now been passed on to the
states given their larger resource base. But, there needs to be a deeper assessment of what the central
government needs to do to best leverage the devolution. More thinking needs to be done on this. I would
see the inertia on the CSS as reflecting the fact that this process is only just getting started. One thing
that worries me is that the capacity of states to implement varies dramatically. The centre must take on
some responsibility for equipping states to spend the money wisely. Let's hope that this process is set
in motion soon, perhaps with the NITI Aayog playing an important role, given its broad mandate.
A K Bhattacharya: It is also interesting to see how the government has used the cess and surcharges
route to raise more revenues. It has lost an estimated Rs 1,080 crore by abolishing the wealth tax, but
the loss will be shared with the states to the tune of Rs 450 crore. But the wealth tax has been replaced
with an additional surcharge of two per cent on those earning more than Rs 1 crore taxable income. The
entire proceeds of Rs 9,000 crore will go the Centre, without being shared with the states, as under the
devolution formula, cesses and surcharges are not shared with the states. Similarly, the cess on petrol
and diesel has been raised by a margin similar to the reduction in excise in these two products. The
reduction neutralised the increase in excise on these two products effected in the last few months. So,
there is no additional impact in the end-use price. But the additional revenue of Rs 80,000 crore from
excise on these two products would go away and the states will bear the loss to the tune of Rs 33,600
crore (42 per cent of the divisible tax pool). And the Centre will take the entire revenue in its account.
But to be fair to the Centre, this money will be used for infrastructure creation - like roads and railways

the benefits of which would go to all the states.

A K Bhattacharya: Subir, I think we had a very useful session, exchanging thoughts on the Union
Budget. There are many promises and the framework for several new proposals will be keenly awaited.
Should we end this discussion on that note?
Subir Gokarn: Yes, the temptation to use the cess-surcharge route, which absolves the centre from
transferring to states has not been resisted! But, I wouldn't be too worried as long as the money is being
spent on activities that have clear cross-state externalities; transport networks are clearly in this
category. Perhaps, the central govt can commit to spending these amounts ONLY on such activities, like
the FM committed to spending the FRBM slippage ONLY on capital expenditure, thus lessening the
adverse impact!
Subir Gokarn: Yes, thank you AKB. I think the budget puts the government in a good position; of course,
as always implementation is the key and often the cause of good intentions being derailed. Let's hope
for the best!