Objective is to prevent growth from slowing, says Pranab

Objective is to prevent growth from slowing, says Pranab

Finance minister Pranab Mukherjee spoke to Lok Sabha television just after presenting the budget. Edited excerpts:

When you were preparing the Budget, was inflation or growth your prime focus?

In fact, both were very much on my mind and I knew well I would be able to address both. When I decided to have a huge fiscal expansion, I only had one objective. That objective was to prevent the further deceleration of the growth. When I took over as finance minister in February 2009—at that time also I was thinking it will be a temporary charge because I was holding charge of external affairs—I presented the interim budget. But even in the interim budget I fully supported and expanded the fiscal space because the objective was to add a further deceleration of growth because in the last quarter it came down to 5.8%.

I knew what would be the consequences. Therefore, when I presented the first budget with a renewed mandate, I stated that this type of fiscal expansion cannot be sustained for a longer period of time. I shall have to come to the path of fiscal consolidation. Therefore, it was very much in my mind that along with growth I look at fiscal consolidation.

Now prices have increased and number of factors are there but people are not concerned with factors or reason, because for the people prices is a lively issue, a day-to-day matter, particularly food inflation. So I had to concentrate on not just growth but also to address the problems which were leading to inflation, particularly food inflation.

It’s there that I found out a serious mismatch and supply bottleneck of essential food items, therefore it is to be addressed in the agricultural ministry identifying commodities in short supply—pulses, edible oils. I shall have to ensure that the huge gap between the retail price and the wholesale price (is addressed) and I shall also have to address the price difference between producers and ultimate consumers and, therefore, I shall have to ensure the competitive price advantage to the customer and also the remuneratory prices for the farmers and I have stated that this year I shall have to focus on it.

What I’ve done in the Budget is taking measures to augment the production of those commodities like edible oil, pulses, cereal, sugar and other commodities, which are in short supply, because I am fully aware of the fact that there is an international pressure in the global world and so I wanted to prepare myself for the supply response. So, the Reserve Bank, in constant consultation with myself and finance ministry, is working that out. Whatever was required from the fiscal side, I have done and more will be done as we proceed.

Second aspect, which has to be addressed more deeply but still the situation is fluctuating and that’s oil. No one can predict the price. In August 2008, it was $147 per barrel. In the last 15 days, it was $10-15 less. Yes, when I adjusted the price in June last year, it was $69-70 Indian basket price and that’s why it was too fluctuating and it would be too premature to arrive at a decision and take collective measures.

But at the same time I am aware as to what is to be done, but I’m not making any comment right now because we are yet to study in depth and see how it takes final shape and that international commodity and international situation, how does it move and what form and shape it takes has to be seen.

Do you hope to push through the goods and services tax (GST) and medium-term reforms which have an impact on lowering inflation, the potential to attack black money, expand the revenue base and even cut expenditure?

All these three essential ingredients (are) possible if we can launch GST with cooperation from state governments. Basic approach and objective that there should not be multiple points of taxation, there should be uniformity in rate and there should be predictability and fluctuation shouldn’t take place without consulting each other and various mechanisms; we’re working on it.

Still, there are some diversions of the view but in large areas convergence is there. For example, IT (information technology) infrastructure for commercial taxes is there. I’ve also mentioned in the budget that I’m aligning my tax rates keeping in view that GST is gong to be in place.

All these are messages that the finance minister is serious about GST. But it requires political consensus and I hope we build up that.

I feel that reforms in direct taxes through DTC and reforms in indirect tax through GST can stabilize the tax systems. With IT, compliance will be easier, implementation will be easier, realization will be more, abuses would be reduced and without taxing people more, adequate resources will be generated, which will address deficit and address requirement in the social sectors and others where you want to invest more.

The next round of big reforms, GST or land use fall in the domain of the states, so increasingly these reforms require political cooperation with state governments, especially with the opposition. Is there a strategy to have an ongoing dialogue with the opposition?

We should have ongoing dialogue, we don’t have it always but it’s the reality. Single-party rule all over the country may be ideal situation; according to some it’s not ideal. Aspirations at the local level, aspirations at the regional level will come up but they cannot get manifested at the national level particularly in a country of India’s size, magnitude and complexity. But in our country, we should accommodate it, absorb it. We have to build up cooperative federalism and contributory federalism. We have to create the atmosphere to run the country. Each and every state has to contribute for growth. These are aspects to keep in mind.

You have done a good job in controlling expenditure. This year, total expenditure growth is 3%. How did you manage to control this while handing out funds for social sector projects?

I have to give 50,000 crore as mentioned in the budget but helped by revenue. There has been substantial revenue on the direct and indirect tax side. In addition to non-tax revenue, the 3G (third-generation) spectrum has given me an advantage because I got more than I anticipated. But now I shall have to be vigilant.

I do hope that it will be possible to have the a reasonable level of tax buoyancy. My advisors told me, particularly for the 3G spectrum, that sir, don’t hasten it. It’s not necessary to have it in 2009-10 and perhaps you can wait for a better price. And that’s exactly what happened. My advisors asked me to defer it and the timing helped. That has paid me rich dividend. Proper timing assessment is important but I cannot sit back, relax and pat my back because expenditure control is difficult and expenditure reform is needed.

You are depending on growth to generate revenue. There’s a feeling that over the last six-seven months, policy clarity has been missing. Will you create a climate for businesses that there’s a single-window clearance to develop mines, increase steel and other businesses?

That’s why GoMs (groups of ministers) have been appointed to look at various issues to address in a time-bound manner. There have been certain events that may have taken place but I think it’s important that in the present state we have to just keep looking forward and move ahead.

The impression among investors is that there’s tension in environmental concerns and development concerns. And in this budget you gave a signal that it will be resolved. Is that right?

Yes, we will look at these issues. In mines and mineral developments, I had discussions with chief ministers from Chhattisgarh and Orissa, apart from our colleagues, so we are working on it.

You said that the budget marks the transition to a more transparent system of governance, if one reads about the direct cash transfer to the poor for delivering public services using the unique ID (UID). So you seem to be building technological capability and political capability that will be married.

Yes, these two have to marry. We have the tech capability.

Once the mechanism is in place—technical and political capability coming together—can we assume that delivery will be tighter and leakages will be controlled

The idea was that a) it (the Mahatma Gandhi National Rural Employment Guarantee Scheme) should be demand-driven, b) it should concentrate on wage earnings. Imagine, a labourer from Bihar was coming to Assam, Punjab, some other areas with tensions and people killed by extremists… So these people didn’t have jobs and to avoid that type of situation, to give them jobs, pure and simple manual jobs for 100 days at fixed wage within 5km of his residence. That was the whole scheme through which we started.

Now, with technological inputs, we can improve delivery mechanism efficiently. Once it is being done, then the leakages and abuse will be reduced. Responsibility will be expanded and with the technological input, rule-based delivery mechanism, your power of discretion will be completely eliminated. One of the major reasons for corruption is discretionary powers. Rule-based, technologically backed, institutional arrangement will prevent that. That is the objective I want to have in governance.

You also expressed the worry about India’s widening current account deficit. The commerce ministry has said it will grow wider. How do you deal with this?

With the present level of fluctuations here and there, it was possible to finance but there are problems. Therefore, the method of financing, ingredients of financing. Stable flows in foreign direct investment (FDI) are needed. We have to emphasize on FDI. I have given concessions with the objective that foreign exchange should come.

We shall have to work on it. FDI in retail is ideal and may solve problems in huge wastage that’s taking place. If someone does it, then looking at others, others will be doing it. In a democratic set-up, you can’t thrust your decision, you shall have to—however strenuous it is—you have to carry on dialogue and arrive at the decisions.