Investments for Railways won’t go down after Merger: Yashwant Sinha

yashwant-sinhaSpeaking to media, Former Finance Minister Yashwant Sinha said the railways can’t be treated like any other department. “My own feeling is that the Finance Minister will have to grant a lot of autonomy to the Ministry of Railways, he said. Sinha also spoke about advancing the date of the Union Budget itself saying it was a welcome move. “I am happy that the small little step I had taken of changing the time of the presentation of the Budget has been considerably changed by advancing the date of the Budget and have it in the first week of February.”

However, he said that the fiscal deficit will be difficult to calculate in real terms one or four weeks ahead of the normal presentation of the Budget now.

The Budget reflects on the economic situation in the coming year for which the Budget is being prepared. The FM will have to guess what is going to happen. All this things will have to be done carefully, he said.

Regarding plan and non plan expenditure, he said capital expenditure won’t suffer. “Planned expenditure had capital revenue, too.”

Investments for railways won’t come down, he said, after the merger.

Below is the verbatim transcript of Yashwant Sinha’s interview:

Q: Will it be business as usual for the Railway when their Budgets get collapsed into the Union Budget or do you think that the Railway may suffer probably lower monies, lower powers to raise debt, will it change the railway’s autonomous position in any fashion?

A: It will depend on what is worked out bilaterally between the finance ministry and the railway ministry now and especially in terms of the autonomy that the railways would enjoy in future because a separate Rail Budget had in the past assured a certain amount of autonomy to the railways and one will wait and see what are the details of the arrangement on this issue, autonomy of the railway. Railways cannot be treated like any other department of the government. The other departments and ministries of the government have had their Budgets through the general Budget but this is the first time that the railways will have this. But my own feeling is that the finance ministry will have to grant a lot of autonomy to the ministry of railways.

Let me give you an example. There used to be that system in the past that gross budgetary support for the plan was worked out in every Budget after lengthy discussions between the finance ministry and the planning commission and once the gross budgetary support was worked out then though the finance ministry at the official level was involved the allocation of those funds between the ministries and the states was done by the planning commission. And I remember many occasions where as Finance Minister I would be unhappy with the decision taken by the deputy chairperson of the planning commission. So, will this mean that the Finance Minister will state the gross Rail Budget and the details will then be worked out by the railways as in the past?

Q: Let me ask you about the other big development of the day and that is advancing the date of the Union Budget itself. You were responsible for taking the Budget from an evening appointment to a morning appointment so since then this is the next big change that has happened on the economic calendar as far as the Budget itself is concerned. The Finance Minister in his conversation with us tried to explain the rationale behind advancing the Budget date itself. Do you believe that this is a step in the right direction?

A: I am happy that the small little step which I had taken of changing the time of the presentation of the Budget to parliament is now being considerably changed by advancing the date of the Budget and probably has it in the first week of February – that is of course a very major change which is going to take place but it has pluses and minuses. On the minuses side the government will have to be quite careful.

Q: What would be the key minuses to your mind of advancing the Budget?

A: There are two things; one is that for the current year for which the Budget had been presented earlier, you will have to guess the expenditure which will be incurred in the last quarter of that financial year.

Q: You expect more expenditure to lapse, is that what you are saying?

A: No, I am saying that the fiscal deficit will be difficult to calculate in real terms one or four weeks ahead of the normal presentation of the Budget now. Today you had only to anticipate let us six weeks, now you will have almost 12 weeks. So, that is one where you will have to guess and we all know that expenditure is bunched in the last quarter.

The second is the Budget reflects on the economic situation in the coming years for which the Budget is being prepared. So, to that extent, again, the Finance Minister will have to guess what is going to happen in the next year. All these things will have to be done very carefully so that we don’t miss the mark.

Q: I also wanted to get your comments on the other change that has been now approved by the cabinet and this was an intent that was expressed in this year’s Budget by the Finance Minister to do away with the distinction between planned and non-planned expenditure. What to your mind will that imply now?

A: If there is no planning commission, there is no planning, what is the use of having a planned expenditure reflected separately in the Budget. So it will now only be capital and revenue. However, I wish on capital and revenue also the government takes into account the recommendations of the Rangarajan Committee, maybe not in this Budget but in a future Budget makes a move which will reflect clearly and honestly the amount of money which is going for investment.

Q: You don’t fear that capital expenditure may suffer because you don’t have this distinction between planned and non-planned?

A: No, because as you are aware planned expenditure also add capital revenue. So, therefore it is not likely to suffer. All planned expenditure was not investment expenditure, not capital expenditure.

Q: For the railways itself you fear investments may come down because of the collapsing of the two budgets or in any ways their ability to raise money through the IRFC?

A: May or may not because if that is worked out — as in the case of the state, when you are discussing in the earlier days when the plan was being discussed with the states the amount of market borrowing by the state was also included in the overall plan allocation. So, when you discuss the Rail Budget with the railway ministry borrowing from the IRFC can be worked out and stated in the Budget.

Q: We have got another big set of recommendations that are expected at the end of the October. The NK Singh Committee on reviewing the fiscal framework itself and what we should do or how we should address the fiscal deficit itself. Given the fact that we are now seeing these changes how likely or what would your view really be on how the government should address, whether it should be a band as far as the fiscal deficit is concerned as far as rejigging the fiscal framework itself?

A: No, I am not in favour of the government taking liberties with the bill, the act and I was very unhappy when we had to accept the recommendation of the standing committee and give a much longer rope to the government. When I had prepared the bill, I wanted to be very strict and I would hope that the fiscal responsibility and management bill will not be an open ended thing for every government to take liberties with it. But it should be a time bound thing especially now and within three years we should say that we will do away with revenue deficit and ultimately live with 3 percent of fiscal deficit.

Q: The NK Singh Committee is expected to speak about general deficit. So, it would be union plus state deficit that they will speak about…

A: Even better, but let me tell you that after the states adopted their Fiscal Responsibility Act, then the performance of the states has been much better than the Government of India.

Q: As far as this change, obviously, is now going to be implemented as we can understand it has not been confirmed yet, but from next year itself, which means that as oppose to February 28 perhaps we will see the Budget being advanced to January 31 or February 1. We understand that the pre-Budget consultation process has already begun, but what will it take now, for North Block to really be ready for this advanced date?

A: No, they will have to advance the entire calendar. My experience is that the Finance Ministry started the first discussions which were started on the next year’s Budget by the Finance Ministry was with the ministries of the Government of India, with regard to their expenditure and with regard to the possible expenditure in the next year. So, that used to take place from November sometimes and this will have o be advanced by a month and perhaps begin from October 1 or any date around that. So, the first will be the discussion between various line ministries and the Ministry of Finance to fix the expenditure budget of the Government of India. Then you discuss the part B if the Budget, which is exclusively the preserve of the Finance Ministry and there, with goods and services tax (GST) and stability in customs and direct taxes rates, there is not much left for the Finance Minister to do. And I hope that in the future, Finance Ministers will not think customs duties or income tax rates here and there. GST of course will be cast in stone.

Q: Since in any case 40 percent of tax revenues are going out of the Budget to the GST Council, will it really be necessary to have such a long Budget planning at all because not much is tweakable anyways?

A: The expenditure side has to be planned properly so that we don’t miss the mark on the expenditure side. However, as far as the revenue is concerned, on the revenue side as you are aware, the good part was indirect Taxes and on indirect taxes, with the GST now, much of it is gone, the only indirect tax which remains is customs duty and that is also now stabilised over the years. So, there is not much meat left there for change.

Q: If you were Finance Minster today, will reaching the fiscal deficit be therefore more difficult because you don’t have control over 40 percent?

A: You have control, after all it’s the Finance Minister of India who is presiding over the GST Council and of course he will have to give more cooperation to the states and take more cooperation from the states.

Q: Since we do have you today, tomorrow is that crucial meeting of the GST council. This is the first meeting since the GST council itself was notified. Now the hard work really begins on what happens to exemptions, what happens as far as rates are concerned? What would your advice really be, the Centre seems still inclined to pushing for 18-19 percent as the standard rate. States, we understand would like something more than 20 percent at least closer to 22 percent. Do you believe that the rate will perhaps have to be somewhere in the middle?

A: I read in the media that they have likely to have more than one rate. There probably be four-five rates, so the mean rate could be anything. I mean anything between 16 and 18 depending on how much you are collecting through the other rates. You will recall that when I was finance minister, I had collapsed all the 12-16 excise duty rates into three rates and the three rates were one mean rate, one was a merit rate and the other was demerit rate and I don’t think there is really a justification for more than three rates even as far as GST is concerned. Anything more than three rates will lead to administrative complications. Therefore, they should settle for three rates and work it out in such a way that there is no loss of revenue and through better compliance the state and the Centre will get more revenue.

Q: How is the Centre placed in this new body? This is the only body under the constitution in our last 75 years where all the states are equal – one state one vote. It doesn’t work like that even in the Rajya Sabha. How does that change the Centre’s bargaining position? They will have to get 19 state votes for any law to pass, if the Centre wants a law 19 states out of 31 have to support and then the game is theirs. Will you see the Centre cajoling the smaller states, the 7 north eastern states or the union territories very quickly? How will politics move, what is the politics of the GST council?

A: Let me share a secret with you, when I was chairing the standing committee of finance in the 15th Lok Sabha and we were looking at GST constitutional amendment bill. This is exactly the question that I asked of the official to the finance ministry. I said, we are all the times showing concern about the interest of the states and loss of revenue on this that the other, but have you ever paused to consider what is going to happen to you, to your power and it’s not nearly what happens in the GST council, what happens to the Government of India’s power to impose cesses, what happens to the Government of India’s power to take certain other emergency measures, will all this go to the GST council and then we will have to have prior approval of the states and why would the states not oppose surcharges of the Government of India, which are not shared by with the states.

There are all these issues which is have to be considered and settled by the GST council, but all in all I will say that the life of the finance minister is not going to be the same and he will have to work much more diplomatically than in the past.

Q: What is it that you would like to hear from the FM, what kind of clarity would you like from the government as they put this plan in motion?

A: Well, I think as far as merging of the Railway Budget is concerned, they would have worked out a detail and I hope the finance minister in his press conference would be able to throw some light on this and tell the country, what is the autonomy, will Railway will continue to enjoy even after the merger of their Budget with the general Budget.


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