The primary task before Goyal is to present the interim Budget 2019 on February 1 in the Lok Sabha, where the BJP has a brute majority.
The BJP is known for three tactical approaches. First, taking “bold” decisions as per its brand image — witness the swift rollout of the Goods and Services Tax by 2017. Second, it takes risks big time — consider the sudden November 2016 move on demonetisation, which has paid off only partially. Third, it under-informs the public. Consider the sudden appointment of Piyush Goyal as minister of finance and corporate affairs. Arun Jaitley, the previous finance minister, who is unwell, was extended the courtesy of being made a minister without portfolio.
The primary task before Mr Goyal is to present the interim Budget 2019 on February 1 in the Lok Sabha, where the BJP has a brute majority. He had similarly stepped in around the middle of last year when Mr Jaitley had been hospitalised. This 54-year-old is clearly slated for higher office if the BJP returns to power this year. A first-time minister in the present government, he was the czar of the energy portfolio. In September 2017 he was elevated as a Cabinet minister. Like Prime Minister Narendra Modi, he is a workaholic and operates like a corporate CEO; takes quick, informed decisions and then rams them through the usual bureaucratic kerfuffle.
He displayed this talent by auctioning the 204 coal licences which had been cancelled by the Supreme Court in August 2014, soon after the Modi government took charge. The bids were well short of the estimated loss to the government caused by the previous government after a non-transparent first-come-first-served rule. But the auction of natural resources as a market-based, transparent, relatively efficient instrument, has since been embedded as a best-fit practice.
He has championed the Prime Minister’s impossible target of renewable energy capacity of 175 GW (gigawatt) by 2022 — announced soon after the government assumed charge in May 2014. Affirming this at the December 2015 Paris climate meet, he branded low-middle income India as an improbable climate evangelist.
In September 2015 — within a year of taking charge, Mr Goyal shepherded UDAY, a voluntary scheme to reduce the crippling debt of the state government-owned electricity distribution utilities — the Union government’s third such attempt. Interested state governments were to assume 75 per cent of the `3.95 trillion debt of their distribution utilities; float state bonds to pay back lenders in return for the Union government’s support for improving billing, collection and reduction of high technical loss of energy. The objective was to reduce the stressed assets of public sector banks and reduce the interest payments for distribution utilities.
Expectedly, the aggregate fiscal deficits of the participating states increased by 0.7 percentage points relative to the non-participating states, which were at 2.9 per cent of GDP, in exchange for uncertain gains from operational efficiencies. Spectacularly successful was the National LED programme. Bulk purchase of LED bulbs and their resale though a quasi-public sector procuring entity, Energy Efficiency Services Ltd, slashed prices to affordable levels. The public responded by buying 281 million LED bulbs in 2016, reducing emissions by 33 million tonnes of CO2 through saved energy use along with levelling out the peak load for electricity.
Piyush Goyal has set a scorching performance record since 2014. It would be characteristic for him to do so again in the finance ministry. Expect savvy strategising on Big Brand items.
Mr Goyal does not have much leeway. Aggregate revenue receipts are lower than target this year because of lower GST collections and low non-tax revenues, while expenses on recapitalising publicly-owned banks have sapped `2 trillion of public resources since the last fiscal year. India’s public debt to GDP ratio is in danger of crossing the 60 per cent mark.
Simultaneously, farmers, agricultural labourers and small businessmen are disgruntled by their diminishing incomes — the former due to continued depressed growth in agriculture and the latter because of broken business revenues caused by having to factor in tax payments on purchase and sales.
Mr Goyal, the CEO, should avoid the political noise and bombast of an “interim Budget” with just one objective — assuaging the 150 million-strong “entrepreneurial” families (agrarian, business or informal — gig-economy — workers). Nothing speaks like money in the bank. He must assure them that, if it is voted back to power, the BJP will put `24,000 per family directly into the bank account of the seniormost female member. He will need `3.6 trillion per year for this purpose, or around three per cent of GDP. Fiscal conservatives would want him to finance this largesse by ending non-merit subsidies and tax deductions. But ending subsidies is a medium-term plan, while affirmative action is needed right now. But Mr Goyal should play to the BJP’s strengths — thinking big, taking risks and surprising tax dodgers.
Mr Goyal has the drive and expertise to compel better direct tax compliance, including through extensive use of big data. Till November 2018, direct tax collections are 16 per cent higher than over the same period last fiscal, making the target of `11.5 trillion reachable. A further 25 per cent increase in FY 2020 can fetch an additional `2.8 trillion. Second, he should seek to raise an additional `0.8 trillion by redistributing the tax burden progressively amongst the four million income-tax payers who earn more than `1 million per year. Rearranging the tax rates and slabs and suitably capping tax deduction benefits for this category can ensure that the wealthiest — with annual incomes above `10 million — pay the most.
The news from frosty Davos this year is not cheery. Global growth is down from 3.7 to 3.5 per cent in 2019. China — India’s bête noire — will slow down to 6.2 per cent. India in comparison will grow at 7.4 per cent.
The income of the top one per cent in India grew by an explosive 39 per cent in 2018. More of that extra income should be taxed and redirected into the bank accounts of the 80 per cent others whose incomes have either stagnated or grown below the nominal growth rate of 11 per cent per year. If Piyush Goyal can pull off this miracle, he will have reaffirmed that he is a political administrator extraordinaire.