Interim finance minister Piyush Goyal on Friday announced a massive farm relief package in the interim budget. The Rs 75,000-crore PM Kisan Samman Nidhi Programme will provide Rs 6,000 to farmers owning lander under 2 hectares.
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The scheme will have the Rs 6,000 transferred directly to farmers’ accounts in three installments, Goyals said, adding that the entire cost of Rs 75,000 crore for FY20 will be borne by the central government.
Ajay Bhushan Pandey, revenue secretary and Rajiv Kumar, secretary, department of financial services, discuss the government
A quick clarification and that is the question I think everybody is asking. You have said that it will be Rs 6,000 as part of this PM KISAN Yojana, the income support scheme that you have announced. I want to ask you whether it is too little or could you have done more, but when will the first installment actually hit bank accounts?
Pandey: The scheme will start this year itself. For that Rs 20,000 crore has already been assigned. The details of the farmers who would be eligible for this scheme, the list will be collected from the states and because in many places the land records have already been digitised and you also have Aadhaar there, so with that, the direct benefit can start flowing by the end of this month.
So by the end of February, beginning March you believe that it should start to hit bank accounts?
Pandey: That is correct, beginning March.
You talked about the fact that land records in some states have been digitised but very few states have actually digitised land records. Aadhaar is a different story altogether. Do you believe that there might be some inconsistency, some patchiness that some states may benefit more than others?
Pandey: If the scheme is announced, then if the person is eligible, he will get the benefit. The question is when does his application come in and when that will start. What will happen is, there are many states like for example the various states where the digitisation is on a very high level – Andhra Pradesh, Telangana, Maharashtra, or Gujrat, or even Haryana for example, these are the states where the benefits will start flowing. Even the other states also till this whole arrangement of – if the land record is not that digitised, certain other measures could be taken up.
What will be the process, if the two of you can explain to us what will be the process, how somebody who finds himself eligible can apply for this scheme?
Pandey: The details of the scheme will be declared by the ministry of agriculture. The scheme has been approved, now they will work out the details and then they will roll out to these states.
Kumar: If I can just supplement, while the digitisation is an issue in certain states, but the land records are available. So if you look at the disasters, when disasters take place, you immediately go. The land record system is quite robust and therefore as you do a survey and throw the blocks, mandals, and tehsil, all the record is available. So the small and marginal farmers below 2 hectare, their records are available. So, digitisation is one part.
Secondly, they have somehow got formalised either through Jan Dhan or through DBT or through some other means. So it is not that big a challenge. A big campaign will start with the help of the states to identify and go through that process by which you can identify all those who are below 2 hectares and can then transfer this money.
Let me come to Budget math and let me start by asking you because that is where the question marks are being raised on how the arithmetic adds up. Total tax collections were expected to grow by 18.3 percent in the previous Budget, the actual FY19 tax collections have been between 11 and 12 percent in the first nine months. Now, on this year’s highly unlikely tax growth of 19 percent, next year’s tax growth is being assumed at almost 15 percent – 14.8 percent. Are these numbers deliverable?
Pandey: If you see our track record, for example, direct tax, last year the growth was 18 percent. The year before that the growth rate was 15 percent. So this year also we are expecting that our direct tax growth will be somewhere to the tune of around 20 percent. So considering the track record, the estimates that we have given in the Budget, that is not something which we cannot achieve.
You are focusing on direct tax, but let us talk about indirect tax which is where the big hole is. Is it only on account of GST or is there also been a significant shortfall on the excise front?
Pandey: Excise front we had a minor setback because of the price situation. However, that also we are recovering now. So far as the GST is concerned, if you have seen the growth as compared to the first year of the GST, our average collection is used to be Rs 89,000 crore per annum. Now this year it has increased to Rs 95,000 crore and then this year again we are seeing the encouraging trend. For example, this January month collection has crossed Rs 1 lakh crore.
But does that account for a refund? You have not given us the details yet?
Pandey: The refund would be constant phenomena. So Rs 89,000 crore when I said that the collection, that will be gross collection and the refund will be minus. Similarly, when I am saying that average collection this year has been Rs 94,000 crore, that also includes the refund. The refunds will have to be netted. So similarly this month’s collection has exceeded Rs 1 lakh crore and of course, some refunds will go up. So what we have to see is the trend. Now the trends are encouraging.
On the indirect tax front, and again indirect tax growth was 6 percent versus 23 percent that was budgeted and again I come back to my point of where the concerns come in as far as the arithmetic is concerned.
Pandey: What we have done, we have taken a series of measures so far as the GST is concerned. We have reduced the tax rates for many items during the last one and a half years. The total tax benefit by the reduction in rates amounts to almost Rs 90,000 crore. We also feel that when you reduce the tax rate, then it does not mean that tax collection will come down. Your tax collection should increase and that is exactly what we are observing that we did some tax reduction in the month of July, then also in the month of December and then in January also we did some tax reduction.
However, our revenue trends have been encouraging. Apart from that we also have introduced certain other reforms such as e-way bill for example. We are also moving towards a situation where we are now able to match invoices also so that there is high compliance.
You believe that you will stabilise at this Rs 1 lakh crore number which we have not hit as many times. We have hit it for January is what you are telling us and we have hit it previously twice in the previous year, but do you believe that we are now achieving some degree of stability at this Rs 1 lakh crore number?
Pandey: Yes, exactly. GST, we are almost about 1.5 years old, a little more than that and because of all these measures, we are entering into a stabilisation zone. We do hope that our revenue will stabillise our Rs 1 lakh crore in the coming months.
Let me ask you, bank recapitalisation, there was not a fresh announcement that came in on recapitalisation this time around, so would that be the expectation now in the full Budget?
Kumar: The requirement of capital, you must see in co-relation to the kind of recovery which is taking place. So, capital is essentially a function for the banks to raise it themselves. Since the entire banking has done the entire cleaning process and as you see that the entire stress is recognised, even the SMA accounts, the stress has come down to the lowest in the entire decade, it is at 0.6 percent the SMA and the recovery is at its peak.
Recovery through NCLT and through IBC process is at its peak. We have also given the sanctions to the banks to raise the money and to go to the market. The non-core sale is also the part of the raisings. So, that will also bring the capital. We have sufficient capital for the current year and I think the time has come now that the banks learn to sort of raise their own capital and be responsible for themselves. The government has given sufficient capital and you have seen the results already. So, capital is not a concern.
So you are saying no more capital for banks?
Kumar: They should move towards raising money their own and all of them are showing signs that they will do it and all the necessary approvals for raising are also in their hands, we have already given it to them.
Two more questions to deal with banking- three banks came out of PCA that announcement came in and what is the expectation of more banks that could follow suit?
Kumar: There were total 11 banks, so Dena bank is going to be amalgamated and you know the combined results of the entity which is going to come on April 1, so after subsuming Dena's they would be on their own.
Three have already come out. IDBI is now with LIC, so it is not our part and they would soon announce robust plan how they come out with this. Now that leaves us with only 11 minus 5-6 and as we feel it is only the better performing PCAs that we would support. We would expect first them to recovery and support. So this round was also based on the performance within the PCAs.
So, which are the ones you believe are ripe and on the cusp of being able to exit the PCA out of the six remaining?
Kumar: I am waiting for their December results but there are three-four more which can fulfil those requirements and can show the performance. But one thing is very clear that it has to be performance based, it doesn’t have to be relaxation based.
A question on consolidation – the minister talked about consolidation in his speech, although haven’t provided any further road map but can we now expect more amalgamation within the public sector bans, there has been a lot of buzz around Corporation Bank as being another contender possibly for amalgamation. Is further consolidation on the anvil?
Kumar: If you look at the entire consolidation, amalgamation thing. If this exercise in Bank of Baroda, Dena and Vijaya Bank continues there would be a new entity, we have already said it in the parliament, the scheme of amalgamation and it happened in record time.
If you look at the entire space in regional rural banks (RRBs) the consolidation is going on already, we are reducing them also from around 56 to 35-36. As far as other remaining PSBs are concerned the synergy and scale and kind of convergence is always something we should look for.
Is anything on the table?
Kumar: There are various options available and synergy and scale is what they must move towards.
So actively looking at consolidation?
Kumar: But at the same time, you must also remember that we are not doing it just for the sake of it. If you look at the present exercise of these three banks, it was that combined entities result should look very attractive.
Could we expect an announcement in this financial year?
Kumar: We will look at the entire space and the timing.
This financial year?
Kumar: Timing I cannot determine, its evolving.
Is it a possibility?
Kumar: Let me see the December results and then come to you.
The fear once again is that this Rs 75,000 crore package that has been announced for the farm sector. This is unlikely to be a one-off. It would be political suicide for a future government, whether it is this government or another to come and say that we are going to withdraw this if anything it will only be enhanced going forward. So it becomes a recurring account that you are going to have to look after from a revenue perspective. Where is the money going to come from because the speech did not talk about the measures to raise revenue? Is it only going to be on account of borrowing?
Pandey: If you see the entire budget, this current year’s revenue streamers have been provided and how much money we are going to collect from direct taxes and indirect taxes. Next year also the estimates have been given and with that, the fiscal deficit has been kept at the level of 3.3 percent but if you see the new numbers, then the fiscal deficit will come somewhere around 3.1 percent for the next year.
Therefore, so far as matching of the budget is concerned that has already been achieved. When the finance minister presented his budget on Friday.
I understand that you have looked after the math, the larger question is where do you find the resources to be able to continue to fund these scheme and are you looking at new ways of revenue mobilisation?
Pandey: So far as revenue mobilisation is concerned on direct taxes, what we feel is that we are entering into an era of moderate taxes and high compliance regime where the tax burden on people will be moderate and compliance will be high.
We have seen an example, during the last three years at least where the tax growth has happened the 15 percent, 18 percent and this year 20 percent, while the inflation rate has been around 4.5 percent. Even if you see the GDP growth in nominal terms it was around 11 percent. Tax buoyancy also we are getting somewhere around 1.5, this is happening because of high compliance.
The tax rates have not been increased in the last three years, the tax rates for corporates as well as personal income tax, the tax rates have come down. So it is on account of compliance, we know we are collecting more revenue and the same thing is happening on GST as well.
Kumar: And as formalisation further takes place, the tax compliance will go up.
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