TV Somanathan took over as Expenditure Secretary in December 2019, when India’s economy was already facing a downturn. Come 2020 and the coronavirus outbreak with its subsequent lockdowns have put massive pressure on revenue generation, given the GST returns date suspension, extension of advance tax dates, cut in TDS rates and extension of filing returns – all measures taken to reduce the burden on the common man amid the coronavirus pandemic.

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In an exclusive interaction with CNBC-TV18, Somanathan deciphers the challenges ahead and the measures being taken by the government to lift the economy in such testing times.

He said that FY21 will be a financially challenging year, and even the recent massive excise hike on petroleum products will not be sufficient to make up for the tax revenue losses. Hence, market borrowing and expenditure rationalisation will continue to be the fallback options, as the Centre struggles to unleash a fiscal stimulus.

Excerpts from the conversation.

Challenging year for revenues -- excise hike on fuel not sufficient to absorb revenue shock

“There is a huge revenue shock, GST returns date has been suspended, advance tax date extended, TDS rates slashed, return filing date extended to November, so there is going to be a lot of pressure on revenue this year. Certainly, the fuel excise hike will cushion the revenue shock to a partial extent. It cannot make up for the losses though."

April tax devolution at 110% and not 41% of Union taxes

“Revenues are falling and have fallen substantially in the month of April. And I must tell you the tax devolution given to states is 110% and not 41% of what is collected. We gave out more revenue to the states than what we collected. We gave out 110% of what we collected. Yes that has fiscal consequences, yes we have to work with that and make sure we end this year successfully. It’s a challenging year, no doubt about it. But we are grappling with that challenge."

No blunt expenditure cuts, but will optimise spending wherever possible

“We have no intention of any blunt or poorly calibrated cuts in expenditure which can be counter-productive. We don't want any negative impact on the economy in the manner in which we do the expenditure cuts because we are doing expenditure increases through the package, through expenditure switching, where it does not impact the economy... We will be constantly looking for optimisation of the expenditure, its incumbent on us to do that so that we have enough to spend on where it’s most required.”

Restructuring of government schemes underway

As announced in the Union Budget, the government has proposed restructuring of centrally-sponsored and central sector schemes. There are 685 central sector schemes with a budget outlay of Rs 8.31 lakh crore for this fiscal, covering flagships like the Pradhan Mantri Kisan Samman Nidhi or PM-KISAN. There are 30 key centrally-sponsored schemes covering core of the core schemes like MNREGA and other schemes like Pradhan Mantri Awaas Yojana with a total budget of Rs 3.40 lakh crore for FY21.

“We are actively working on cutting some of the smaller schemes. If there are duplications, schemes which are of low value addition and if we need money elsewhere which we do, this year we need a lot of money in the priority areas, we will certainly be looking at rationalising some of those schemes, reducing the number and consolidating them into something more meaningful so that you can have more impact. Thin slivers of money going to 31 states, so we are not able to use the money optimally, so yes we are certainly working on rationalising some of the centrally-sponsored and central sector schemes, we are actively in pursuit of that, we are taking inputs from many sources including the Finance Commission. So we will be taking certain action on it soon."

Disagree with analyst estimates on fiscal impact of stimulus

“I disagree with the numbers as I am not in a position to assess the fiscal cost of the guarantees, and I don't think all of them have assessed it correctly. But I would also say that it is very difficult to assess them correctly. It is a matter of how the economy evolves over the next few months. If there is a rapid pick up then the fiscal cost will be very small. When we give our estimates, we will probably choose to give them to the parliament first… Like for instance the government guarantee of Rs 3 lakh crore for MSME lending is not budgeted."

First Published:May 19, 2020 9:50 AM IST