New Delhi: In his second full-fledged Budget in eight months, finance minister Pranab Mukherjee showed he could walk the talk on economic reforms. A day after the presentation of his Budget, Mukherjee spoke to Mint on the immediate macroeconomic concern of inflation, a possible time frame for following up on the recommendations of the 13th Finance Commission (TFC) and how the entire government backed the decision to raise petroleum prices. Edited excerpts:
This seems like a very honest effort in containing past fiscal sins, but there is an inflationary downside to it. Do you believe your strategy will outweigh that downside?
There is an element of inflation and my people have calculated it will be around 0.4%, maybe (a) little more. I thought, if I don’t do anything then also you will have to get it from somewhere, otherwise your subsidies will increase. To meet the subsidies your (fiscal) deficit will increase. You cannot have a carpet under which you can keep all these things.
Forward-looking: Pranab Mukherjee says he wants to synchronize the introduction of the direct tax code and the goods and services tax.Ramesh Pathania/Mint
Secondly, (it can be) explained in the context of the decision taken in June 2008, when price of a barrel of crude went as high as $127 (Rs5,842 today), then these two taxes (customs duty and Central excise on crude) were withdrawn. When the prices have come down around $70-75 (a barrel), then it is logical that there should be restoration.
Third, it could have been done through the administered price mechanism. Impact would have been the same. It is not a question of who is to take the decision, the government as a whole would have to take the decision. Whatever decision is taken by the ministers, that is the decision of the government. I chose this route not only because it would help me to get some resources, 32% of it will go the states because it will be within the divisible pool (of TFC’s recommendation on sharing of taxes between the Centre and the states).
On TFC, you have accepted almost the entire report, including the game-changing recommendations pertaining to local governments. The Budget was strangely silent about this.
Why are you saying it is silent in this sense?
TFC’s message, which you have accepted, is that local governments will now be economically empowered, which under the existing system is difficult. It is a big move forward...
Of course, it is a big forward movement. When I have stated that I accepted it (TFC’s recommendations), I have accepted it in all its components. Now, it is the process of implementation, which we shall have to do jointly with the states.
Is there a time frame for the legislative changes that TFC envisages?
This will be operational for a five-year period. They have categorized states, some states have to make it earlier. I do hope that they will follow it because these are conditional on some other devolutions and other allocations of resources, it is linked. That time frame will be followed, I hope.
The income-tax changes were a pleasant surprise. If you step back and look at it, they seem to ready the infrastructure for the direct tax code. Is that the right interpretation?
It is going to be implemented from 1 April 2011. When I put the discussion paper along with the code in the public domain for discussions, I have received representations, heard the concerns of all the stakeholders, and we are arriving at the appropriate conclusions.
After doing that the Bill will be introduced in the House.
But the changes in the tax structure in the current Budget—are they forward looking?
It will be subsumed. (It’s) what I want and for that I have to work hard with the states so that I can synchronize the introduction of DTC (direct tax code) and GST (goods and services tax). (On) DTC, substantial work is being done and we shall have to take full advantage of the information technology tool so that we can have smooth transactions. The base I have already started. I have already some allocations in the budget for the states. I think we are sharing about Rs800 crore, so that it is in place, which will help the smooth transition to GST. Your conclusion is correct.
Looking back, in the early 1980s you were part of the team which forced a change in the mindset on the economy. Beginning with the 1980-81 Plan document and in your own budget later. The origins of the long-term fiscal policy were in your last tenure as finance minster. This Budget attempted something similar. How do you compare the two?
There is a big difference. Let me give you one example. I was a little ahead of time, the country was not ready to accept it at that point of time. They accepted it (later). Today, the big difference is that the country is ready to accept change. Rather, they are asking me to have more changes. That time the country was not ready to have any changes. That is the big difference. It is satisfactory. We gave it a modest beginning. Then doctor saab (Prime Minister Manmohan Singh) gave it a big boost up in the 1990s. Thereafter, (there was) no looking back. I must give credit to others who also subsequently joined the government, whether it was Mr Yashwant Sinha or Mr Jaswant Singh, they also carried it. That is the beauty of our system.
You have demonstrated that you are Captain Courageous yesterday (Friday). What about the rest of the cabinet because you need them to back you up in terms of policy response, particularly inflation?
In (the) cabinet(’s) functioning...(we have) a collective working system. In that way, I don’t find any difficulty.