Favourable situation for a rate cut: Ashok Lavasa

Interview with Finance Secretary

Finance Secretary Ashok Lavasa, in an interview with Arup Roychoudhury, said given that inflation was well below the limits set by the Reserve Bank of India (RBI) and the government, there was a case for a rate cut. On job creation, Lavasa said while the government had taken a lot of steps to create employment, the private sector was lagging for several reasons. He added a call needed to be taken on whether the government should continue operating Air India. Edited excerpts:

Is there a case for a rate cut by the RBI, with the current macro economic data?
 

There is a view that interest rates should come down. And, the fact that inflation is well within the target that the RBI and the government have agreed upon — should that be a factor to persuade the RBI to lower rates? Lower rates will always help in pushing up investment. I think the situation is favourable (for a rate cut) and the Monetary Policy Committee (chaired by the RBI’s governor) and the RBI will take a view on that.

There have been a number of publicised achievements of the Modi government in terms of economic policy over three years. What could have been done better and what should the focus be on over the next two years?
 

While the mopping of resources by way of tax collection has been higher than ever before, it is always good to have more to deploy. We would like an improvement in the tax to GDP (gross domestic product) ratio. As we go along, that will be an important priority.

One task is to ensure smooth implementation of the GST (the coming goods and services tax). We have to implement the panel report on FRBM (Fiscal Responsibility and Budget Management Act), and to what extent this will require changes in the current law. We also have to take the states along with us on fiscal consolidation — there have been views on their finances. With a lot of state taxes getting subsumed into the GST, the ability of states to manage more resources, service old debt and find resources for developmental expenditure are some issues we will have to deal with.

A lot of the narrative around this government’s three years in power has been on jobs and how the Centre has fallen short of creating employment opportunities for the millions joining the workforce.
 

In a country with such a young population and massive workforce, the effort to create and find jobs is a formidable one. The government can create an enabling environment for the private sector to create jobs and for self-employment through entrepreneurship. In terms of making people self-employable and skilling them, a lot has been done.

The big chunk of central expenditure in the past three years has been on development and social welfare schemes. There have been some positives in terms of large-scale employment projects in rural areas — rural roads schemes, MGNREGA (rural jobs guarantee) or the efforts to bring electricity and mobile connectivity to villages.

The third part is to what extent has private sector been able to create jobs. On that, more effort is needed by it and the government. Unfortunately, that whole narrative has been overtaken by the bad loan (with banks) problem. Companies with large exposure to non-performing assets are having trouble in putting in more investment and creating jobs.

There have been positive signs with regard to small and medium industries as exports have picked up. Also, the sector-specific package for the textile industry. There will be more such packages for sectors which have big potential for employment generation, like footwear, tourism and construction.

What is the work being done to change the financial year to January-December? When can we expect something on that?
 

The issue is still under consideration. As you are aware, there is a committee report (Shankar Acharya panel) under examination. Then, there will be a decision on what is to be done and by when. It does require some time, as some legislative changes are to be made and preparation is required to reformat accounts. And, whether you want to do it in one go or in phases. All these factors will need to be considered.

While the government has begun a strategic sale drive, there is a sense that it is staying away from committing to divesting marquee names like Air India (AI). Is there a case to exit the civil aviation sector and, hence, AI?
 

AI’s future has been a matter of a lot of discussion. The fact that its financials have deteriorated over time is a concern. The earlier revival packages provided by the government as a result of which thousands of crores were pumped into it, have not shown the expected results. Going forward, the government will have to take a decision on whether we should continue this way or if there is another way to manage AI.

A number of options are being discussed. Whatever the best alternative, it will be pursued. At this point, whether an organisation can sustain itself the way a public sector company should is the question being asked. Given the vibrancy of the aviation sector, and the fact that efficient services are being provided by private airlines, it needs to be asked whether the government should continue in civil aviation. If there is a view that AI is to be sold, you have to find ways to deal with its liabilities, including institutional debt. We have to deal with that as well.