GST won't stop oil price fluctuations: Economic advisor

New Delhi: The inclusion of petroleum products under the Goods and Services Tax (GST) will not prevent price fluctuations as India is a massive importer of crude and domestic prices will reflect global price movements, said Sanjeev Sanyal (in pic), principal economic advisor in the finance ministry.

“We will have a uniform rate across the country. GST inclusion is not going to solve the issue of oil prices going up and down. GST does not solve the fundamental problem that we are importing oil and global prices keep fluctuating. GST will not solve that at all. It will just take away the discretion charge differently as per state taxes. Oil prices will still go up and down because oil prices are externally determined,” said Sanyal in an exclusive interview with Financial Chronicle.

“Inclusion of petroleum products in GST would not bring down their prices in case of crude price hike globally. At best, it would bring uniformity in the prices of petrol and diesel across the country,” said Sanyal.

He said that being an oil importing country, India was susceptible to price volatility. It was a continuous risk and no one had been able to predict oil prices in a meaningful way. “Somebody in the system has to pay,” he said, adding: “So far we have allowed to feed through to consumers but if we didn’t, then we would have to cut back some other things. There is no easy answer to this.”

On managing the bank NPAs, Sanyal rejected the idea of a bad bank. Instead, he exhorted the government to first make weak banks stand on their own feet to be able to lend again and then think of mergers.

“A year and a half ago, the solution to handle the NPAs was to create a bad bank. So, you would have to take a large amount of these bank loans and put it in the bad bank. This would have festered like it happened in BIFR. Banks would have been recapitalised and they would have gone back to lending. It would have been less painful but it would have solved nothing and it would have basically swept everything under the carpet and carried on with the party,” said the principal economic advisor in the finance ministry.

The banking sector led by public sector banks (PSBs) has about Rs 8 lakh crore worth of NPAs. Recoveries through the Insolvency and Banking code via NCLT have just taken off.

Sanyal was of the view that despite many so-called money-guzzling schemes like MSP hike and universal health insurance, India has been disciplined fiscally and there is a sense of urgency in the government to stick to the fiscal deficit limit of 3.3 per cent. That said, he backed the view that farmers need to be supported when faced with a debt crisis but did not elaborate if waiver of loans would help them.

“Recently we have been very disciplined on fiscal side despite various pressures and fiscal deficit has been maintained. In that context, I don’t think there is any fear or concern that we have gone populist for any reason. There may be some areas where we may support farmers. But those are budgeted. Right now with many of the structural reforms well entrenched into the system, the fiscal deficit of 3.3 per cent looks achievable,” he said.

Sanyal refrained from making any comment on the RBI’s decision to hike the interest rates, saying it was the judgment of the monetary policy committee. “At this point growth is strong, globally interest rates are going up, and consequently we need to hike rates. RBI has the inflation control mandate so what they have decided is based on certain facts,” he observed.

The principal economic advisor in the finance ministry attributed the lower inflation regime in the country to RBI’s policies saying the process was painful but worth it.

“One major achievement has been we have structurally lowered inflation which is a very very painful thing to do. Lower inflation helps in lowering cost of capital over a period of time and wage pressures ease off. The process of lowering inflation has been painful. But it is done,” he noted.

Speaking on the chorus on rupee under-performing, he said, “Rupee has not been under tremendous pressure. It has been range bound for the last five years. In fact, the rupee has not been so steady for such a prolonged period of time as it is now. Two months ago the complaint was it was too strong, now it is being said to be weak,” he said.

The rupee declined by 42 paise to hit a fresh 1-month low of 67.54 per dollar on June 8 due to appreciation of the American currency overseas and outflows of foreign fund.