Finance minister P. Chidambaram presented his seventh Union Budget and, in the process, became the second finance minister, after Prime Minister Manmohan Singh, to present all five budgets on behalf of a single government. This was perhaps the most political of Chidambaram’s budgets, with a big emphasis on agriculture. Chidambaram, whose parliamentary constituency in Tamil Nadu is predominantly rural, seems to have moved a considerable distance from the finance minister who gained reputation as a diligent reformer after the so-called ‘Dream Budget’ in 1997. He spoke to Mint after the Budget.
The common man probably never had it so good?
Why, we are focused on farmers, we are focused on middle-class taxpayers, we are focused on women, we are focused on education, we are focused on health. We have covered, I think, every segment of the population.
What was the philosophy behind the strategy to launch a skills development programme?
The skill development is taking place now in a very diffused manner. The quality of the skill development institutes is very poor. ITIs (industrial training institutes) and polytechnics are not really imparting world-class skills.
In fact, I saw a statement which says that only some 30 trades are been taught in India whereas, in China, some 300 trades are being taught. We are not even imparting several skills which are required to be imparted. We need to have a skill development mission, which takes the best practices of the world and starts from scratch and builds up and scales up a network of skill development institutions in this country. That cannot be done, I think, within the government system, that has to be done outside the government system with, of course, a government input in it. That is why we are setting it up as a non-profit corporation.
And, you have received a positive response from the private sector?
Yes, extremely positive. And when we announce the non-profit corporation, we will be very happy.
When is that?
When we are ready to announce.
You seem to have targeted the stock market?
We have made an important change in favour of the broker, and the buyer and the seller in options and futures and we have made a small change as far as the person (who) frequently buys and sells shares, that the STT (securities transaction tax) paid is deductible. That is (it will now be treated as), the normal business expenditure.
What about the fact that you raised short-term capital gains tax?
Yes, if you stay invested for one year, it will not affect you. When anyone buys and sells stocks frequently, he is really in the business of buying and selling stocks. He makes money. That is short-term capital gain. Many countries do not make a distinction between short-term capital gain and long-term capital gain. Some countries do not make a distinction between capital gain and any other income. Any gain, any income would have to be taxed at 30%. We are taxing it at 15%. And anyway, as I said in my speech, whether he gets it as dividend by holding on to the share, or whether he gets it as capital gains, by selling the shares, he should pay the same rate of duty.
Do you feel it will retard foreign institutional investment flow into the country?
Why should it? If you hold it for one year, you pay no tax, which is the biggest magnet of Indian markets.
On the indirect tax side, other than the fiscal stimulus, how does the cut in excise duties dovetail into the goods and services tax (GST) road map?
It does, because whatever the GST rate is, we have not agreed upon a GST rate yet—16% is too high. It has to come down. And this year, I wanted to give a stimulus to manufacturing. So both objectives converged. I brought it (Cenvat) down from 16% to 14%. It (therefore) serves two objectives.
People say that the combined GST rate would be 20%.
I do not know. That has to be decided between the Centre and the state.
Though you said that from this year there would be a transparent reporting of off-line budget items, such as oil bonds, what about aggregating what is already accumulated in the past?
Even after adding the two, my fiscal deficit is lower than what I had inherited from 2003-04.
What is it?
If you add what was given in 2003-04 (when the UPA took charge), it was 5.15% (of gross domestic product, GDP). In 2007-08 (BE), I am still at 3.81%. So, I have still done well on containing the fiscal deficit.
What if you add all the backlog?
You cannot add the backlog. The fiscal deficit is what is accumulated every year.
So you are happy with the fiscal legacy that you will leave behind?
I think so. We inherited a fiscal deficit of 5.02% (of GDP). We leave behind a fiscal deficit of 2.5% (of GDP). If you add the off-budget, we are still far below what we inherited.
One point that some of them make about FRBM (Fiscal Responsibility and Budgetary Management Act) is that when you give oil bonds the life of 15-20 years, you are essentially violating the inter-generational equity participation.
That is not new. That is not something that happened now. It has been happening in every kind of bond issue. Why is oil bond different from fertilizer bond? A bond is a bond. It is not that something has happened suddenly now and you guys have discovered it only now. We are issuing bonds so that for the first time, we are bringing bonds transparently on the Budget statement and I am going to ask the 13th Finance Commission whether they can devise a strategy to eliminate these off-budget liabilities also.
The Budget disappointed on reforms, especially when compared with what the Economic Survey laid out?
Economic Survey has that advantage. It can think ahead, throw up policy options. Government takes into account a number of factors and then decides to accept one or two or more. We have accepted this time the smart card for the PDS (public distribution system). We have accepted the proposal that central public sector enterprises, or CPSEs must be listed. We have accepted a proposal that a coal regulator must be appointed.
The CPI has gone on record saying this Budget just stops short of declaring election dates?
The finance minister does not declare dates. It can only be declared by the Prime Minister and the Election Commission. Besides, in India every year is an election year. So every budget has to be an election budget. So every finance minister must have an election budget. What kind of criticism is that? You have nothing else to say so you call it an election budget.
What Chidambaram unveiled in some of his past budgets
1997 The Dream Budget
Announces a voluntary disclosure scheme in an effort to unearth black, or unaccounted money. Does away with surcharge on corporate taxes and abolishes dividend tax at the level of shareholders.
Announces the controversial Sethusamudram project, to build a shipping canal through the Palk Strait. Also announces the equally controversial special economic zone initiative.
Introduces gender-based budgeting to make budgetary allocations on gender-based sensitivities. Also announces the ambitious Bharat Nirman Programme, along with an initiative aimed at making Mumbai a regional financial centre. Fiscal pressures force the minister to ask for a moratorium on the Fiscal Responsibility and Budgetary Management Act. Also launches fringe benefit tax, which has been an irritant for industry since.
Announces several schemes to spur growth and focus on disadvantaged sections of society. Allocates the bulk of the government’s resources to the United Progressive Alliance’s eight flagship programmes: Sarva Shiksha Abhiyan, Mid-day Meal Scheme, Rajiv Gandhi National Drinking Water Mission, Total Sanitation Campaign, National Rural Health Mission, Integrated Child Development Services, National Rural Employment Guarantee Scheme, and Jawaharlal Nehru National Urban Renewal Mission. Also introduces e-governance initiative, which allows e-payment of customs and excise duties.
Announces reduction of duty on pet foods. Declares that the budget is focused on inclusive growth. Also announces the setting up of the debt management office, and brings employee stock option programmes under the purview of the fringe benefit tax scheme.
Utpal Bhaskar contributed to this story.