Budget matches economy’s challenges: PM

Budget matches economy’s challenges: PM

Prime Minister Manmohan Singh spoke about the budget in an interview with Doordarshan. Edited excerpts:

How does this budget address current economic conditions with regard to inflation and sustaining rapid growth?

This budget meets all the challenges that our economy and our polity faces in the next fiscal. We need to sustain a high rate of growth and, therefore, this budget builds upon the good performance of the current fiscal’s 8.6% growth rate to a projected 9% growth rate, for which adequate provisions have been made particularly in the area of infrastructure and in social sector plus agricultural development.

It is certainly necessary to curb inflationary expectation for which it is very essential that there should be a path of fiscal consolidation. The finance minister has done a commendable job by planning to reduce the fiscal deficit and revenue deficit before the figures he himself had projected in the budget estimates. And, therefore, what he has done by way of social sector spending, what he has done by way of encouraging investment in agriculture, the tax concession that he has given, I think this is a budget that matches the challenges our economy faces. Sustained growth, equitable growth, inclusive growth plus a determined effort to curb inflationary expectations.

The finance minister has not raised any additional taxes and yet tax revenue is up 25%. Is this achieved just because of rapid growth? And, therefore, can you continue to reduce the deficit by achieving rapid growth?

Well, rapid growth is certainly one factor. But I think equally important is greater tax compliance and for that moderate rate and simplified system also are very essential. And the finance minister has walked on both these legs.

The expectation was that there would be some scheme to try and bring in black money to invest in infrastructure. This hasn’t happened. Was it at all a factor the government considered?

Well, amnesty schemes have been implemented in the past. I don’t think they have succeeded in providing a permanent cure for black money. We need to have a system’s reform in a holistic manner to deal with this menace.

If the government’s borrowing programme is static, would you expect interest rates to moderate?

That is certainly one factor. Because the government cannot be a claimant on the nation’s savings pool. So that will at the margin help. But there are many other factors, for example, what happens to inflation. That also has to be taken into account.

There was an expectation that the finance minister would raise the excise and service taxes from 10% back to 12% level that prevailed before the (crisis). What were the calculations that went into keeping the taxes unchanged?

Moderation in taxation on balance is a good thing to play with. And if you are moving towards a GST, I think it is also necessary to have that end product in mind. I think that’s the right way to go about because we cannot be too certain that everything will work, the arithmetic will work the way we want it to work. We must have ample scope to contribute to fiscal consolidation.

On social sector programmes, is there a spending capacity issue for the government?

Well, there is obviously. These programmes require a boost in terms of great delivery services. So there is a problem which has to be faced head-on.