Finance Secretary TV Somanathan said the 2024-25 budget increased capital expenditure by more than 11% and investment levels were maintained as the focus remained on macroeconomic stability. In a post-Budget interview with Aanchal Magazine and Anil Sashi, a top official of the Union Finance Ministry also said that the conditions for capital investment support to states may be different in the next financial year and the guidelines will be announced in due course. He also said that there would be. Edited excerpt:
A: I don’t think that way…I think they make decisions based on whether they think there’s a profitable investment. Nothing we did was intended to convey any kind of intent. What we have done is provide an appropriate level of capital investment given the overall financial situation and current growth rates. And I think this level of capital investment, with or without private investment, will be more than enough to maintain the current growth rate…Next year’s capital investment as a share of GDP will be higher than this year’s, and as a proportion of the budget. The percentage will also be higher this year than this year.
Therefore, assuming no change in private capital expenditures, we should obtain roughly the same results. It should accelerate if private capital investment comes in, but I don’t think it will slow down no matter what the private sector does.
When we do this budgeting, it’s not like a monetary policy statement trying to tell us something. This is not a communications statement. This is an operational report on government finances. It will have certain positive, negative and effects. No part of this statement is intended as a message to anyone. This is not designed as a message to rating agencies. This is not designed as a message to the bond market. It was not designed as a message to the private sector. This is a statement of how you will manage your finances. People can use it to decide what they should decide.
Q: Is it for states?
A: Our statement is very important to the state. This is because of the amount of decentralization, the type of subsidies available, etc. That’s because it’s an operational issue.
Q: But when it comes to state capital investment.
A: 1.3 billion rupees was continued for another year. It’s important to them and it’s provided. This is not a continuing or permanent scheme but will continue for a further year.
Q: Will the conditions remain the same as before?
A: No, maybe not. However, Rs 75,000 crore of this will be based on reforms. It is also included in the budget bill.
Q: But maybe the conditions are different?
A: We need to consider what is most relevant next year and reissue the guidelines. What has been your experience so far, what components have you found useful, and what new initiatives do we need to promote? Therefore, we will be publishing guidelines in due course.
Q: There are multiple factors when it comes to the issue of reigniting the private sector investment cycle. Bank credit to industry in India is much lower than in China, he said, adding that cleaning up bank balance sheets and corporate books could help. On the other hand, however, there are concerns that consumption has not yet recovered and remains at a low level. Industry capacity utilization remains hovering around 75%. Corporate tax cuts have failed to revitalize industry. So, have there been any changes on the ground that give you confidence that the industry will start investing?
A: Look, I think what we’ve done for ourselves is to keep government investment at an increase of more than 11 percent. We continue to support a number of production-linked incentive schemes that are generating capital investment in these areas. I agree. This is just a small portion of total industrial investment. But a subset of them is making investments. There is evidence that some took off, and some did not. But for those who have it, the investment is coming. There’s proof of that.
Several initiatives are announced in the Budget, including private projects in the innovative sunrise sector, among others. These can have some impact in the medium term, so the budget is very focused on the medium to long term.
What should we do about capital investment in the short term? Well, there is one positive thing. Reducing the strain on available savings is expected to have some impact on both the availability and cost of private sector finance. That could perhaps shift the balance in favor of more investment. But beyond that, we really don’t know what concrete impact this budget will have on private investment intentions.
All I can say is that perhaps trying to maintain this macroeconomic stability could create a favorable investment environment. And I think ultimately, if the climate is good, India will continue to be one of the fastest growing countries in the world. And unless we mess things up, investment resources will eventually gravitate toward the growth that’s happening here. And I think if we don’t act rashly or do anything negative, it will come, it’s just a matter of time. Even if there is not much capital investment from the private sector, it stands to reason that if this growth rate continues to grow at 6.5%, eventually someone will have to invest to meet this demand.
Q: What will be the scale and profile of the housing plans announced in the Budget?
A: It’s not fully designed yet…it will be a moderate-sized project. It would provide gradual support to certain deserving segments of the middle class, people with modest incomes, and provide them with cheaper loans to acquire housing. It’s not necessarily just an interest subsidy, it could be an interest subsidy, it could be a non-interest subsidy, it could be a low cost loan through a priority sector credit scheme, a combination of that is being considered…yet. It’s under design, but it’s not fair to go into detail at this point.
Q: What are your expectations for next year in terms of allocations to states?
A: Look, we give you this money every year, but we make it conditional because we want to accomplish something with this money. It’s not just about funding states. So we can just give them a grant and they’ll be happy. But no, we think he’s going to accomplish two purposes. One is to stimulate capital investment, and our investments could be in big rail projects and highways. They may be on country roads, culverts, school buildings, hospital buildings, etc. That’s fine, but it requires capital investment. Second, through this window, we want to encourage them to make state-level reforms. Now, some states are willing to do that, and some states are not — that’s their choice. However, we do not necessarily intend for the expenditure to be made unconditionally. The question was whether they were spending money even though their consumption could have been supported if they had just given them money. No, I think there is a short-term vs. long-term trade-off. So I think we’re trying to get that adjustment right and make it a reform that’s necessary, worth making, and viable. Then it’s up to the states to choose that, and states have their own circumstances. And I’m not saying everyone can do what we’re asking, but those who can will receive this money. So, like this year, this is a combination of unconditional and conditional elements, but the specific reforms may be different.
Q: Tax revenue has been strong, which has been a huge help. However, on the other hand, was there also a reduction in spending?
A: There was no conscious spending reduction, but some programs were under budget and departments were not able to spend what was available within their budget. And capital investment is also somewhat lower. We’re at 95% on significantly increased capital, which is not a bad performance at all. So we saved a little bit there too. Therefore, total income and non-tax income increased significantly.
Q: Despite the sale?
A: Although sales have decreased, non-tax income such as dividends from RBI, banks and PSUs has increased significantly.
Q: Are you expecting higher dividend from RBI next year?
A: We do not expect an increase in RBI dividends next year. Overall, we expect non-tax income to increase. There will also be telecom revenue, which will be a significant amount of over Rs 1,000 crore. Putting all this together, next year’s non-tax income is expected to be slightly higher than this year.