Farm infrastructure is the need of the hour: Finance Secretary

‘Need earmarked resources, certainty over a period for a sustained infra programme, agri cess will help raise sector’s productivity, says Pandey

A day after the Union Budget 2021-22 was presented, Finance Secretary Ajay Bhushan Pandey spoke on the rationale behind some of the policy proposals. Excerpts:

Are the increases in custom duties on some products and the rationalisation to remove some exemptions a protectionist signal?

The general philosophy behind our customs duty structure is – we want the raw material to come at a minimum rate, intermediate products should be at an intermediate rate, the finished products could be at a slightly higher rate but within the range of our MFN rates.

The proposal nowhere talks of increasing rates to 30%-40%… these are just internal adjustments. We had seen there are several items getting taxed at 7.5% but one or two items are being taxed differently, we have tried to bring them on par so that the tax rate is similar within the same chapter and category.

We have had several old conditional exemptions — if you export this, you can import this duty-free or if you are importing something, you need to do specified things — in place for decades.

We want a transparent system because this becomes very difficult to enforce [to check] if the conditions have been met or not, and also gives rise to a lot of discretion that can be misused. So if you want a system that is transparent, objective and free of discretion, then we need to review these conditional exemptions.

Last year, we did 80 such notifications. This year, the remaining 400 have been identified and we will review them in the next six months and continue only those exemptions which are absolutely necessary.

There’s been some criticism about the lack of a direct job creation push…

It has to be seen in context. The government makes capital investment in infrastructure and creates an environment that attracts private and foreign investments. Ultimately, it does lead to job creation. For example, if we have a PLI scheme, mobile phones are being made here, jobs will be created.

If they are sold in India, the entire sales network will create jobs. If the phones are used, their servicing will create jobs.

Could the import duties on mobile phone components hurt the PLI scheme?

I don’t think so. The PLI is on the basis of — you produce here and get benefits based on incremental production. What we have done is prescribed a very minimal duty when those components are being used in India. Those who make the same components in India will get that advantage.

But if they are importing components and exporting the phones, they will get the duty drawback so exports wouldn’t be impacted. For domestic consumption, it will make a miniscule difference (in the final price) if a component had 2.5% import duty. But it will incentivise domestic manufacturing.

There are fears that the agriculture infrastructure cess could reduce States’ share of taxes.

Agriculture infrastructure is the need of the hour. We need to improve productivity and efficiency in the sector. For a sustained infrastructure development programme, we need earmarked resources and the certainty of these resources coming for the next few years. With this in mind, it was decided (to levy the Agriculture Infrastructure Development Cess or AIDC).

To ensure it doesn’t pose an additional burden for consumers, the existing customs or excise duty on those small number of items where the cess has been imposed, has been readjusted to make way for AIDC. In the case of petrol, we have also adjusted the additional excise duty which comes purely to the Centre and could have been used for many other things. But we wanted that to be spent on farm infrastructure.

The disinvestment policy has moved from the idea of having up to four public players in a strategic sector to a ‘bare minimum.’

We couldn’t put a number but have displayed our intent. Which is why we have said minimum, you can’t have a dozen (firms) as minimum. Whether it is one or two, it is a bare minimum.

What’s the rationale for including the LIC Act amendments to enable its IPO, in the Finance Bill?

If you see Article 110 of the Constitution, wherever the government’s money is concerned – if an IPO is done and money is received, according to the legal advice we have, it meets the criteria of being part of the Finance Bill. It is not a question of a faster process, but about what is the right thing to do.

The government has wiped the slate clean on the fiscal arithmetic in 2020-21 and estimated a 6.8% deficit for 2021-22. Are you confident on the revenue front?

One thing we wanted to ensure is we needed to be very transparent, whatever be the number. During the last ten months, what we collected as revenue and what we spent is publicly known. So if you present that transparently, with nothing off-Budget, the fiscal deficit number will be something like 9.5% of GDP. These are very challenging times, the government has not hesitated to spend money this year despite the resource constraints. What is more important to realise is that — in such a challenging time for revenues, both on the tax and non-tax front (disinvestment revenue was also difficult, though we will be able to finalise soon those transactions) —the spending part, be it on infrastructure or assistance to people, was done in all sectors.

The Budget estimate for the total expenditure was ₹30 lakh crore, but in the revised estimate, it has become ₹34 lakh crore. Usually what happens when there are resource constraints, is the revised estimate will be lower than the Budget estimate. Our revenue estimates have come down, but our expenditure estimate has gone up. However, in the next year as well, this expenditure has also been kept at a higher level, but we are seeing an uptrend in the revenue side. Last few months, we have seen an uptick in the indirect tax collections and also in the direct tax collections.

If you are going to continue on this path, without increasing the rate, by improving our collection efficiency, by using technology and data and easing compliance, we have estimated that for a nominal growth rate of 14%-15%, our tax revenue will increase by 16.7%. We have estimated ₹1.75 lakh crore as non-tax revenues. I think these are achievable and therefore, our fiscal deficit next year is in the range of 6.8%. We have to come out with a realistic estimate. If we collect more, we will spend more.

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