Subsequent to his Budget speech, finance minister Pranab Mukherjee spoke to Sunit Tandon, chief executive officer of Lok Sabha Television. In the televised interview, he spoke about his rationale for various steps announced in his speech and how they are intended to bring the economy back to a high growth trajectory. Edited excerpts:
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You were presenting the Union Budget after a gap of 25 years. There have been some substantial changes in the Indian economy in this period. I’d like you to contrast your experiences between then and now.
At that point in time, we had an acute shortage of foreign exchange. In fact, my immediate predecessor, (R.) Venkataraman, from whom I took over in 1982, had to enter into an extended funding facility with IMF (International Monetary Fund) to the extent of 5.2 billion SDRs (special drawing rights). My job was to improve our foreign exchange position and see that we did not fall into a debt trap. In fact, I returned 1.2 billion SDRs. Returned in the sense I did not withdraw the last tranche of the…instalments due.
A significant part of your exercise would have been aimed at how we get back to 9% growth. You would have that road map with you. What do you think is this road map you have initiated with this Budget?
That is why I have taken the tremendous risk to create that fiscal space…of having higher deficits. I could have gone the more conservative way of reducing deficits and satisfying myself with 6% growth or less. Even the high growth rate syndrome in the 1980s was 5.8%. Even before 2003-2004, our average growth rate was around that.
Today, the situation is different. But I took that risk. For the three earlier fiscal stimuli that we provided, we had to part with about Rs1.86 trillion in the form of enhanced plan outlay and revenue sacrifice. Therefore, the target was to achieve the high growth trajectory. Keeping that in mind, I have taken this risk.
You have taken this risk at a tremendous cost because interest payments are 36% of expenditure. In the long term, how will you cope with this?
I feel it will be possible because if you look at the investment—major infrastructure, rural infrastructure and urban infrastructure programmes, not taking into account railways and others—it has increased substantially from Rs62,000 crore to Rs1.24 trillion, almost 98%.
Illustration: Jayachandran / Mint
We have to keep in mind, with the growing aspirations of the people, that you cannot simply resort to strict monetary policy. If we make a comparison, I understand the US fiscal deficit is going to be more than 11%. In the UK, it is more than 16%. Compared with that, India is 6.8% and I do feel it would be possible, even when I present the full budget next year, to improve the situation. If there is a slight improvement in the international scenario, then our exports will pick up. But if exports and manufacturing sectors go down, then there will be revenue shortage.
If you want to step up the plan outlay by one year, it is more than 33%—from Rs2.43 trillion to Rs3.25 trillion. And you have also crossed that Rs10 trillion mark in terms of total expenditure. Total expenditure and total receipts also; of course through borrowed receipts. The gap is of some concern because it’s not very clear from your speech how it is being financed.
Additional market borrowing has been done. Those details are there in the Budget papers. I have given the philosophy of the investment. No finance minister can say “I will disinvest this and disinvest that”. The policy I have indicated.
The policy is that it will be done with people’s participation
The markets seem to have reacted rather negatively to this Budget. Perhaps you can tell me for what reason?
I am yet to find out the reason, but I am told by experts, that in the last one month, there was a lot of hype. And in the expectation, people forget the reality. Perhaps the market expected too much from the finance minister in one go. At the beginning of my speech, I corrected myself by saying that one Budget speech is not going to address all problems and that is not the only instrument through which all problems can be solved. You can give a broad vision which has to be followed up.
There is not another fiscal stimulus as perhaps the industry was expecting?
No... Three we have given. But if you look into what the components of the major stimulus were, which we provided, one was the fiscal concession; another was the public expenditure; the third was the monetary policy with the reduced interest rates. After my talk with the public sector banks, you have seen that almost every bank has announced reduced interest rates.
The Reserve Bank has reduced the repo rate substantially. So, monetary aspects we are taking care of. I have not got back the concessions that we have given on Cenvat—from 14% to 10% and from 10% to 8%. These are continuing.
So, the infrastructure and the other expenditure is going to generate the demand-led growth that you wish to see coming.
I am expecting to have that demand-led growth.
What are your expectations of the rate of growth by the end of this financial year given the kind of provisions you have made in the Budget this time?
I don’t think it will be less than 7%. It may not be in the next financial year but my target is to reach at least 8.6% as fast as possible. Of course, I would like to achieve 9%.
I see some turnaround by the third quarter possibly, but unless there are visible improvements in the global scenario, it will take more time.
Let’s turn to your major initiatives, particularly with view to distributive justice. You have substantially enhanced outlays for various social schemes of the government. Can you tell us a bit about that?
I have stepped up substantially if you take into account NREGA (National Rural Employment Guarantee Act) and other components of Bharat Nirman. The enhancement is 79%. For Indira Awaas Yojana, enhancement is 63%.
I am comparing between budget estimates 2008-09 and budget estimates 2009-10. I have enhanced minority-related schemes by almost 74%. I have enhanced to 105% the budget outlay for all women-specific schemes.
People are becoming restless because they want to be engaged. I must keep them engaged. The ambitious programme that we are projecting will cover 50% of the women through self-help groups.
We will try to cover all children up to the age of six through the Integrated Child Development Services. These will require money, and money will come from growth. These are the reasons for the demand-led growth.
You have also made several tax proposals which have been long looked forward to—abolition of fringe benefit tax and the surcharge. You have increased the exemption levels in income-tax, but not much.
I do not believe if you look at a period of six years, the total enhancement was Rs40,000. Thereafter, during P. Chidambaram’s period of five years, it went up to Rs1.5 lakh. Now I am building up on a much higher base—from Rs1.5 lakh to Rs1.6 lakh. In case of women, it’s Rs1.8 lakh to Rs1.9 lakh. In case of senior citizens, Rs2.25 lakh to Rs2.4 lakh.
When the base is higher, the percentage will be smaller. But I have not tampered with it because I want to have real reforms in direct taxes.
What direction are you envisaging in the direct tax reforms?
First, I would like to do away with the plethora of exemptions. I would like to make tax laws simple. Rate of taxes will be low. Voluntary compliance will be more. Income-tax return submission would be simple.
What about indirect taxes? You have reduced customs duty on LCD panels but there are some that we haven’t quite understood. You have exempted branded jewellery as a concession to women.
It is because the prices of gold and silver went up. I have charged Rs100 per 10g to Rs200. For jewellery, on the customs side, I have stepped up from Rs250 to Rs500.
For silver, from Rs250 to Rs500 per kg. So, I thought I would give some concessions on the jewellery.
Of course, when I have enhanced these duties, that is not on jewellery. It is on the import of the raw metal.
The specific component of 24% ad valorem duty for large cars and utility vehicles of 2000cc and above has been reduced by Rs5,000 to Rs15,000. This does not seem to tie in with your other initiatives of promoting biodiesel and so on. Large cars are generally being taxed more heavily. Why has this been brought down?
Because I have enhanced the prices of petrol substantially. But I have given substantial concessions for the use of biodiesel and blending.
Many people have said that the petrol price hike just before the Budget has enabled you to escape criticism on this point.
The Budget has nothing to do with it. The government is providing a service and it is charging for that service. Here, the role of the government is that of a service provider.
What about the expert group that you are setting up on petroleum pricing?
Do you know what happened? Earlier we left it to the oil marketing companies.
And oil marketing companies, before 2004, used to change prices very frequently, so there was a sense of uncertainty in the oil pricing. Every variation of global prices and they used to adjust it. In 2004, we took it upon ourselves. And we had to pay a very heavy subsidy because it was not easy for us to enhance the price as and when it goes up. I think in the last five years, we have adjusted the prices only twice or thrice, and that too small and marginal increases.
Even in December and January, we reduced the duties on petrol by Rs4.5 per litre and diesel by Rs2 per litre. We gave them concession of Rs25 per cylinder. As a result of that, the subsidies have increased substantially. Take the case of kerosene. Per litre subsidy is Rs16. In LPG, Rs92 per cylinder is the subsidy.
I want the best method of pricing. Let the experts come out with the recommendation. I want there to be some amount of stability. Total stability is not possible when three-fourth of our coal requirements are coming from outside. It would be subject to the vagaries of international fluctuations.
How would you rate this budgetary excercise? How satisfied are you with what you have achieved?
I am never satisfied. I am never content with what I do. What it is, is for the people to see. What I can say to sum up is that I have left a huge fiscal deficit, no doubt, but with the objective of having adequate money to inject in the system to help the productive sectors and to lead the demand-led growth.