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 non-government 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!