Interview with Economic Affairs Secretary shakti Kanta Das

Now first I would like to say big namaskar to all your viewers. Now coming to your specific question, you see the budget process is a long run process. Sometime in the middle of September a detailed circular is issued to all the ministries about the process to be followed. Then in the month of November and partly in December the department of expenditure holds meetings with various ministries and government agencies about their expenditure requirements in the current year and the requirements in the next year and that is worked out. Then parallelly sometime in the beginning of January or so the revenue department starts making its forecast of revenue for the current year and for the next year. We need the current year details for the revised estimates in the budget and we need the figures for the next year for the next year's budget. So in the budget as you know there are revised estimates which relate to current year what is going to be the final figure and we have the budget estimates which are for the next year. So then when expenditure and revenue proposals they sort of converge then again in the middle of January the finance minister starts holding consultation with various stakeholders and ministries and others. So a lot of suggestions and proposals come then I would say from the end of January we really start putting everything together, proposals are concretized, then it is placed before the government before the finance minister, decisions are taken, and then the budget comes to you know all the activities which go on over the last 3 or 4 months they converge around 20th of February when the printing of the budget documents really start. So it's a very long process which involves large number of people not only within finance ministry but also across ministries. In finance ministry in the department of economic affairs we have a core group that is the budget division which is really the core group that puts together all the documents.

Yeah, you know large number of recommendations and proposals come from, in fact we invite suggestions through the Twitter account, through the email. We also get large numbers suggesting, we get lot of recommendations, lot of suggestions. I would say half these proposals or maybe 60% of these proposals are the same proposals which keep coming year after year. So we keep evaluating them because the situation changes. Just because we did not accept something last year, it doesn't mean that we will not look at it this year because the situation is changing. Last year we could not do something because the situation was different. So even if it's an old suggestion, we know what the suggestion is. We have all the details. So a fresh view is taken whether it can be done. With regard to the new suggestions which come there are again two parts. Some of them are purely procedural administrative which can be done at any time of the year and really do not relate to the budget process. So then we take out what really relates to the budget process and then we have dedicated teams for examining these proposals. For example the revenue department have two wings to examine all the direct and indirect tax proposals. In the expenditure side also the department of expenditure and the department of economic affairs together we hold consultations and discussions with the concerned secretaries and then put some proposal before the government in a manner with a specific recommendation that this proposal can be accepted with these modifications or no modifications and this proposal cannot be accepted for these reasons. Then the finance minister goes through the entire list and it is discussed intensively and decisions are taken. So it's a very wide consultative process where again a good number of people is involved.

Okay, let me explain it in a manner which is as simple as possible. Every family we have a family income. Now the family income consists of let's say my salary. If I have a house property, the rent I get out of that, I have some bank deposits, I get some interest out of that. So all these put together they are my income. Then there is a family expenditure. Now in the family expenditure there are some recurring expenditure for buying vegetables, for buying food items. If I'm staying in a rented house, I have to pay the rent. I have to pay electricity bill. I have to pay water charges. These are what we call revenue expenditure. The day-to-day expenditure to run my house, to run the household. Then sometimes we require, let's say, I want to replace the air conditioner in my house or I want to, if I'm in a private house, my own house, I want to add another room because space is becoming inadequate. That becomes capital expenditure. So coming to government using the same logic, in the case of the government the government has income from various sources. We get tax revenues which is mainly income tax, customs, excise, service tax. We have non-tax revenues also of various charges, fees, or for that matter we have revenues coming from the auction of spectrum or the dividends paid by the various banks and public sector undertakings. So we have income of the government. Then we have expenditure which is revenue expenditure and capital expenditure. Revenue expenditure is day-to-day expenditure, salaries and other things. Capital expenditure is something which goes into building of real assets, some construction activities, some irrigation project or investment in a new factory or something like that, or let us say giving some capital to capitalize our public sector banks. So you have the income, you have the expenditure including both revenue and capital. Now the difference between the two, and usually our expenditures are more than the income. So let us say my income is 10. Government's income is 10 and if government is spending 12 then fiscal deficit is two. Now from where you get that two? You get that two from the market by borrowing from the market, and government borrows it from the market and the investors are the banks, the financial institutions. So government borrows that. There's nothing wrong in borrowing because if you have a certain base income, you can always afford to borrow. In my house also, in your house, or for example in many of our viewers' houses, people do take loans to buy a refrigerator or you want to buy a television during Diwali. There are offers which are given by banks and by shops. So we also take a loan because I have the capability to repay. What is important is how much I should borrow so that I continue to be able to repay. So in that context fiscal deficit becomes important. So therefore just to recapitulate, fiscal deficit is the difference between your income and expenditure. Expenditure is more. So that difference is the fiscal deficit. I have to finance that deficit by borrowing from the market and I must borrow only that much which I can repay. So therefore fiscal deficit becomes very important.

You see as I explained to you, expenditures are important because government has to implement development schemes. Government has to see that the development works and the growth arises because of government expenditure. At the same time as I mentioned, what is important is my borrowing capability. So therefore what is very important is that you have to find a balance. The balance has to be found between your expenditure requirements. What are the critical components where you need to spend money and on the other hand how much I can borrow so that I am able to repay. So based on that there are two schools of thought. There are people who say that you should not worry about borrowing, you should just spending is something on which you must give entire focus and not worry about the fiscal deficit. There is another school of thought which says that you should be maintaining fiscal deficit very tightly otherwise repayment capacity is affected. Now I think the truth generally lies somewhere in the middle and usually government does a very balancing act because government is in a position to know how much expenditure it can afford and how much borrowing it can afford. So therefore a balance is found. I'm sure your next question will be with regard to next year's fiscal deficit which I will not be able to reply in terms of the approach of the government because that's a part of the budget process.

See as you rightly pointed out, the world economy today is experiencing the kind of volatility and uncertainty which we never saw earlier. Yes, there was a time when we used to say that what is going to happen next week in Europe or in some part of the world we do not know, but today we have come to a position where we do not know what's going to happen the very next day in which part of the world. Unexpectedly markets are some, European markets or external markets, these stock markets or other markets are crashing suddenly, absolutely suddenly you find that a particular currency is depreciating. Now we live in a global village so therefore whatever happens in any part of the world affects us because India over the last several years is getting increasingly globalized. So therefore there is uncertainty, there is volatility all around. I think amidst all these problems, when we are in a sea that is in turbulence, I think India is remaining afloat and not only remaining afloat, this year as the statisticians, as the central statistics organization has already given out, we are expecting a growth of 7.6%, which can be considered as very good given the circumstances. We were used to about 8 or 9% growth earlier but given the kind of problem which the world is encountering, I think a 7.6% growth is very very significant and the government is committed to see that we not only maintain this growth but we improve our growth figures. Why growth is important is again to be noted. Growth is important because growth leads to job creation. Growth leads to more opportunities, more economic activities which leads to more development.

I cannot say it'll settle down because internationally again what is going to happen we really do not know. But one would expect in the medium-term this global volatility to remain and our effort in India is to see that we are always prepared, we are ever prepared to deal with any new challenge or any emerging challenge which comes in our path.

I think they will know on the 29th of February at 11:00 a.m. when the finance minister presents his budget. So because budget has a certain secrecy around it because it has to be presented first to the Lok Sabha. But having said that, I must mention that government is aware of what are the key challenges which is facing our economy and the various sectors and the key challenges obviously will be addressed in the budget. The government's endeavor will be to address each and every challenge. Of course people have their own expectation. Every individual or every group of people have their own expectations out of the budget. The effort of the government is to try and see given the fiscal constraints and given the other parameters within which government has to function, it's the effort of the government always to present a budget which is growth oriented and which maintains the momentum of growth and tries to develop on it.