A K Bhattacharya: Hi, Subir, welcome to the Business Standard Web Chat on the Union Budget for 2015-16.

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 nongovernment 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!