More space on monetary side than on fiscal side: Sanjeev Sanyal

The government is making efforts to ensure that tax authorities dealt with sensitivity towards the taxpayer. Principal Economic Advisor in the finance ministry Sanjeev Sanyal told Anjul Tomar that the government will now come up with an anonymised system for tax assessment. This is a part of a series of measures taken by the ministry to allay fears of taxpayers. Finance minister Nirmala Sitharaman will launch the National e-Assessment Centre of income tax department today. With this, the I-T department will shift to faceless e-assessment for taxpayers, aimed at bringing in transparency and accountability in its functioning.

A new phrase has become popular called tax terrorism with income tax and investigative agencies knocking on everyone's door. How do you expect private investment to come in when these agencies are running loose?

Every effort has been made to ensure that every authority dealt with sensitivity towards the taxpayer. Several measures have just been taken. Last week, we took a measure wherein every digital letter issued to taxpayer should have a digital identification number (DIN) so that there is a clear traceability. We are digitising and anonymising the interaction between the taxpayer and the tax department. All of these are major changes. Coming up next is the anonymised system for tax assessment.

There has been a slowdown in the economy. The government has taken some measures. What more is expected?

We are more than aware that there has been a significant slowdown for several quarters now, basically since the January-March quarter. Clearly, we have taken some measures such as tax cuts, and some others are being planned. There is a demand-side slowdown. While we continue to do supply-side measures, there is limited fiscal space. Although we have taken some measures like tax cuts which have some demand implications, it is to a large extent a long-term structural change in our tax architecture. From medium-term perspective, there is more space on the monetary side than there is on the fiscal side.

GST collections are at a 19-month low, indicating a slowdown in consumption and pointing towards a deep slowdown. How much of a concern it is to you and what can you do about it?

Obviously, there has been a slowdown and there have also been several reductions in rates. Slowdown in the nominal Gross Domestic Product (GDP) has been higher than in the real GDP because inflation has also been very low. So, this is reflecting in GST collections and this is an issue as we are trying to get the momentum going. Various steps have been planned.

How do you explain the slump in automobile sales?

There is a slump in the automobile sector. As the FM pointed out, there may be structural issues as well. What those structural issues are and where they will lead is difficult to say. FM also pointed out that behavioural change may also have been influencing it. But it is very difficult to say how structural changes play out. There is a significant cyclical element to it. So, the cyclical part of it should recover.

Corporate tax cuts would cost Rs 1.45 lakh crore to the government. How are you planning to bridge the revenue shortfall due to corporate tax cut? Are you still confident of meeting the fiscal deficit target?

The figures available for April 1 to September 30 show there is obviously a shortfall. Some part of the gap will be made up by the dividend transfer by Reserve Bank of India (RBI) and, then, we intend to ramp up the disinvestment project. After that, if there is a certain shortfall, we will make arrangements. But right now we are stuck to the current year borrowing programme. We recognise that there will be a need to make a further arrangement, we will make.

Non-banking financial companies (NBFC) have been hit by a credit squeeze and the crisis is likely to impact mutual funds. How do you propose to resolve it?

This liquidity issue has been around for some time. For over a year, the NBFC sector has had liquidity problems. As a general principle, we don't try to intervene in individual cases. Our main concern is related to keeping the functioning of the markets, particularly the credit market, efficient.

We will not intervene and get involved every time there is a problem within the institution unless we feel it will disrupt the market and freeze it up. Last year, in the case of IL&FS, we watched it and took a judgement call as that was likely to disrupt the market functioning. So, we ring-fenced it. But generally speaking, we have to allow market forces to function.

There is a perception that investors are apprehensive about economic policy uncertainty. How do you intend to correct such perception?

We have a system of continuous consultation with the industry. FM and the secretaries have regularly interacted. When we do make large structural changes, there will be some disruption. Our idea is to keep consulting and make the smaller second-order changes to adjust along the way. Either you don't want reforms, and if you want reforms you have to allow for the fact that there will be disruptions. Then, there are unintended consequences of new things that emerge. So, of course, we have to keep adapting. The idea is to have certain direction and with the recent tax cuts, the direction has been made even further clearer.