The rich are getting richer, but the poor are not getting poorer : T.V.SOMANATHAN

Increasing consumption among the middle class and the poor in India is a valid policy challenge, the answer to which lies in creating more jobs, says T.V. Somanathan, finance secretary and secretary of expenditure in the Union Ministry of Finance. In an exclusive interview, he also discusses why the current income tax rates are reasonable and why he finds the 3% fiscal deficit target questionable among other issues.Edited excerpts: 

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Private investments have only recently picked up. Do you think the fiscal deficit target of 4.5% can be achieved without a significant rise in private sector expenditure?

First, I think the current growth momentum can be sustained even at a slightly lower fiscal deficit, because I do not see the absolute amount of capital expenditure declining from present levels. That is 10% revised to 9.5% for the current year and 11.1% in the next year. 

I do not think that the consolidation will come at the expense of reducing that. It will come partly through increased revenue, increased denominator in the GDP [gross domestic product] and perhaps through some compression of other expenditure as a proportion of GDP. So, I do not think that we will be seeing any reduction in the levels of capital expenditure. What private capital expenditure can do, if it increases, is to push up the rate of growth.  

Do you think that if this government returns to power, it would be able to achieve the Fiscal Responsibility and Budget Management (FRBM) target? 

I am not speaking on behalf of the government because it is a speculative thing. What I believe is that the whole philosophy perhaps needs to be revisited. I think the old philosophy of a fixed 3% target as a permanent fixed objective is questionable.