New Delhi: Finance minister Pranab Mukherjee is a happy man, thanks to the bidding at the ongoing auction for third-generation (3G) mobile spectrum. He said in an interview that high returns from the 3G auction will provide extra elbow room to the government to manage its fiscal deficit. Edited excerpts:
The 3G auction has already crossed your Budget estimate of Rs35,000 crore. Will you revise your fiscal deficit projection?
I took into account Rs35,000 crore in my budgetary forecast and if I have more than Rs60,000 crore, naturally it will provide me more elbow room. I am particular to keep the fiscal deficit at the level which I have projected, rather to improve it, because I do believe coming back to the path of fiscal consolidation is absolutely necessary to have GDP (gross domestic product) growth on a sustainable basis and to avoid the other concomitance, which are happening in different parts of the country. Therefore, keeping that in view, growth and fiscal consolidation, price stability are the ideas of priority to me.
Decision-maker: Mukherjee says monsoon is the real finance minister. Ramesh Pathania/Mint
You have budgeted for about 5.5% in terms of the fiscal deficit for FY11. Would you estimate that may narrow to 4.8%?
I hope (so). When I will give the final figure to the people through Parliament, I would like to keep some pleasant surprise for the people. That is why I am not making any comment right now. In a country of our size and magnitude, always there are uncertainties, which I cannot or nobody can foresee and predict at this moment. Therefore, keeping that in view, I am feeling comfortable, but I am not over-enthusiastic.
What is the inflation outlook? The sense is that in FY11 average inflation would be about 7.8%. How worried are you?
It is a matter of concern because in this country if the food inflation goes up, it affects the life of the common people.
We cannot protect every section of the society from the adverse impact of high prices. But surely we shall have to protect the more vulnerable sections of society from the adverse impact of inflation. That is why the mechanism of the public distribution system, arrangements of providing subsidies on essential food items, is in vogue for a long time. Unfortunately, that mechanism was not very effective during the recent crisis, we noticed.
So far as the supply constraint is concerned, in respect of inflation, we are taking all possible steps, including ensuring that imports become easier and cheaper.
The appropriate monetary policy is being taken and fiscal policies, monetary policies are worked out in close cooperation with Reserve Bank. Average annual rate will come down substantially to my mind.
What is the number you are working with?
I think it would not be more than 4.5-5%. I hope so. But I cannot say, it depends to some extent on what would be the monsoon. I am talking of the annual average rate of inflation, 12 months average rate of inflation.
The monsoon will be a key factor.
Monsoon is the real finance minister of this country; keep it in mind. The first prediction is encouraging that they are saying that it would be normal.
Are you worried that we are seeing trouble in Europe and that could impact global financial markets?
When you integrate yourselves to the global economy, naturally you will have advantages, you will have disadvantages. You cannot create a mechanism where you will not have any adverse impact of the disadvantages developing outside; no economy can insulate itself from the impact of the global development totally.
What is the update on the goods and services tax?
Today I had a meeting with the chairman of the empowered committee of states Asim Dasgupta and I requested him that when he meets his colleagues (other state finance ministers) he should take into account the responses, which we have made to their first discussion paper, the suggestions, which we want to have, the target date, which we have announced in the Budget that from the next financial year we should have it.
Lot of work is to be done from our side, from their side. We should work in close co-operation and certain exercises are to be made parallel, so that we can reach the target.
We want uniform rate, we want revenue neutrality and I conveyed through him and when I will have interaction with the state finance ministers and subsequently I may have to meet the chief ministers also, I will assure them that the states will not lose.
How worried are you on oil prices?
You know oil is always a worry. Practically we do not have control over it, 75% of our hydrocarbon sources of energy are being imported. Therefore, the international players and the variations there influence consumers like us. Therefore, we shall have to keep in mind that how to insulate the adverse impact of volatility of the oil prices in future. I am fully aware of the under-recoveries of our oil marketing companies (OMCs).
Do you have a rough estimate of the sort of cushion that you could provide to the OMCs?
Rs26,000 crore roughly. Because I have given some subsidies figures, around one lakh- plus thousand crores of rupees; for food subsidy, for fertilizer subsidy and oil taken together and certain other subsidies, I think hundred thousand crore-plus.