GST will allow smooth flow of goods and services
Interview- Ashok Lavasa, Secretary, Finance & Expenditure
Since coming to power in May 2014, the Narendra Modi government has focused on cutting wasteful government expenditure by reducing the number of centrally-sponsored sche­mes so that additional resources could be mobilised for development work. Needless to say, the department of expenditure (DoE) under the Finance Ministry, which is supposed to balance the government’s books, has been in the thick of things. Finance and Expenditure secretary Ashok Lavasa shares his insights into the government’s fiscal strategy in an exclusive interview with Noor Mohammad. Excerpts:

The RBI has red-flagged breach of fiscal deficit target by some states in a recent report. What is the Centre doing to bring states back on the path of fiscal discipline?
As far as the relationship between the government of India and states relating to fiscal management is concerned, you will find that mo­st states already have their FRBM Act and they are governed by the provisions of the Act. Second, the 14th Finance Commission has laid down the kind of fiscal def­icit permitted to state governments. Based on that recommendation, the Centre approves the borrowing ceiling of state governments. No state is given a borrowing limit, which is beyond what has been permitted by the 14th Finance Commission. Generally, that ceiling is 3 per cent (of state GDP). When the Centre approves the borrowing plan of a state, it takes into account that ceiling.

How do you see the farm loan waiver by UP?
Repayment of loans is very important. Loan repayment is generally undertaken in keeping with the terms of loan. However, there could be circumstances in which a borrower is not able to pay. And banks have a system of dealing with such loans. Restructuring of such loans is within the ambit of normal operations. If on account of some peculiar circumstances or hardship, the government takes a view on providing a relief to that category of borrowers, it is up to that state government to first take a decision on what kind of relief it wants to provide and it has to find resources to provide relief within the overall fiscal discipline.

Will the government provide more money for recapitalisation of PSU banks?
Recapitalisation of banks has been done under the policy of the government in a resolution, which was well deliberated and at that point of time, it was decided that the first phase of recapitalisation would be done according to a schedule. The government is following that schedule. However, as the finance minister has made it very clear, if in the intermediate phase, there are some developments in which the assessment of the government is that further recapitalisation will be required, we will take a call at that time.

How do you see GST impacting finances of states?
I see GST is going to have a very healthy impact on finances of states. Overall, it will have a very good impact on the economy. The flow of goods and services will become smooth. Procedures will become transparent and simple. They will be technology-driven. So, we are hoping that compliance will improve with the coming of GST. And GST in the long run will have a very healthy effect on the economy.

What are the achievements of your department in the last three years?
First, if you see during the last three years, fiscal deficit has been maintained. The expenditure on various government schemes has increased. Consistently, year before last and last year, our revised estimate was more than the budget estimate and we were able to spend lot of money on development activities. In 2016-17, the plan expenditure recorded an increase of almost Rs 1 lakh crore over the previous year. That is as far as the expenditure side is concerned. We have been able to make allocations to all important schemes and flagship programmes of the government, whether they pertain to infrastructure development, or to social services, or rural development. The government’s effort has been to focus on strengthening the agriculture economy, on providing infrastructure in rural areas —irrigation, drinking water supply, Swa­chh Bharat programme, Ho­u­sing for All or Electricity for All. All these programmes have been given adequate allocations. The other achiev­ement is that we have revised general financial rules (GFRs), which is only the third time in the 70-year history of the country. We have tried to make GFRs simpler, procurements more efficient by incorporating latest technologies. We have also tried to simplify inter-department dealings. Following GFR, we have also issued a standard manual on procurement of goods and services, which has be­en released only last month. On the whole, the effort has been to bring in be greater transparency.

GFRs mandate use of local content in government-fun­ded projects. Won’t it raise project costs?
The GFR creates an enabling environment for government policies for domestic procurement, which can be framed and will be mandatory. It will depend on the product and on the various departments. If they feel, they need to give a fillip to domestically-made goods and then they will have to come out with a policy on making the procurement of such goods mandatory.
Noor Mohammad