The Budget has been hailed by almost all quarters as positive and more importantly, 'balanced'. In his exclusive interview with Network18's Raghav Bahl, Finance Minister Pranab Mukherjee said fiscal policies and developmental allocations went hand in hand. However, he said the time had indeed come 'for India to think big and act bigger on the global stage'.Q: If you would permit me in one of the things where everyone was looking for a vision statement for you in that you chose to act in a fairly tactical manner and I refer to petroleum pricing. You did the expected old fashioned of hiking the tax which is fine. That was one way of increasing petrol prices would it not have been possible for you to have articulated how you intend to deregulate oil prices?
Below is the edited transcript of Pranab Mukherjee's exclusive interview on CNBC-TV18.
Q: If I were to use adjectives like resilient, safe, predictable—would those be acceptable to you as a definition of today’s Budget?
A: You know it’s very difficult for me to define Budget from other’s point of view. But surely I wanted to convey a message—if somebody ask me to define the Budget—I would like to say that yes, it conveys a message because my fiscal policies, my developmental allocations go hand-in-hand. While I have enhanced the allocation considering that it is priority sector—for example agriculture.
I have also tried to give fiscal concessions in the form of either exemption of customs duty or excise duty to ensure that agriculture develops. But I had three basic objectives. One was that we must come back to the path of higher growth trajectory. Secondly, we must move on the path of fiscal consolidation and third is the inclusive growth, which is the article of faith so far United Progressive Alliance (UPA) is concerned, adequate allocation has been made for upliftment.
Q: You opened this Budget speech by saying that it shouldn’t just be a statement of income and expenditure but you wanted to dwell on the vision statement of the Budget as well. Was this learning from the last time where there was some criticism of the fact that you dwelled too much on the minutiae of the Budget and the vision thing was lacking?
A: You are correct to some extent and also I thought that the time has arisen and the choice was very difficult—I could have become just a pedestrian looking at the concerns in hand, completely ignoring the broad approach each one would like to have to reach the goal—but I chose the latter. I thought that, yes, temporary concerns like price rises or certain other aspects that are there but the time has come when India must not only think big but act in a bigger manner so that it can take its rightful place in the committee of the nations.
A: It is true. But as far as deregulation is concerned, it is an act. Frankly speaking it is not the policy matter. In our context it has assumed a policy dimension. But frankly speaking, economically it is an action of the government. Before 2004 actually deregulation was there and that is why I have mentioned it.Q: But it is your government which actually regulated deregulated practice?
A: We regulated the deregulation. Therefore, if you look at a paragraph, which I have mentioned in my Budget speech that my colleague Minister of Petroleum and Natural Gas will address this issue. I had mentioned that issue, the government appointed a committee. Kirit Parikh Committee’s recommendations are available with the government and they will do this.Q: I think that is where a little bit of a disappointment comes in because you sort of kicked the ball away.
A: I could have.Q: As you have very honestly admitted that before 2004 we did in the National Democratic Alliance (NDA) government, for instance, petroleum prices swung 50%, they went from USD 20 to USD 35 and they were quite a bit of flexible in addressing that. Why this rigidity that the UPA government has got?
A: Firstly, we ourselves did it. That is why it is a bit difficult when you do it. Then you have to switch over again that it would be interpreted as you did not apply your mind when you switched over to the system.
Secondly, there were some individual angularity but I would not like to go into that aspect of it. We are thinking for quite some time that this issue needs to be addressed. That is why not only the Kirit Parikh committee, but the earlier recommendations of the Rangarajan Committee were there, volumes of recommendations are available and it is an action of the government which they will have to do at the appropriate time.Q: Can we get some sense from you what the appropriate time would be, should we say within this quarter, three months or six-months?
A: It will be difficult for me to immediately indicate the time frame. But surely the government will consider this aspect.Q: On the other issue of GST, now, while it’s a big move, it involves states and constitutional amendments, you used very caveated language and there is that little concern that we will attempt and endeavor, these are phrases which allow a way out if something doesn’t happen, so is there any doubt in your mind?
A: I would not say that I have a doubt in my mind. But first, I will say that when I am concerned with 28 states and I am concerned with the consensus which has to emerge among the various stakeholders. I should not assume that everybody will fall in line.
What I would say is that the empowered committee of the state finance ministers are doing a good job. The area of divergence has been narrowed down substantially and the area of convergence has expanded. However, still there are certain areas which we shall have to work on.
Therefore I wanted to convey a message, more or less you can speak on the lines of the Thirteenth Finance Commission when they say it that the differences between the state and Centre shouldn’t be much, the state GST or central GST. The clear message I have conveyed is that goods and services tax could be around 10%.
Q: By converging at 10%, are we to assume that that is what the figure will be?
A: That is the message I am conveying. But here constitutional amendment is involved. I require the support of all the major stockholders; BJP, which is running about four-five states, unless we have their support, unless we have the support of the Left, who are now running three states. Apart from the majority in Parliament, 50% of the States we have number of states. We will start another and so we can do it.
But to achieve the perfect goods and services tax (GST) for which I have taken time otherwise GST was to be introduced from April 1, 2010. But I have taken almost one full year only to achieve that we can go as near perfect as possible.Q: Is there a Plan B like you did, your government did in the case of value added tax where it was becoming difficult to achieve consensus with everybody. So you rolled it out in areas where it was acceptable and then when people saw the demonstration effect worked and then everybody wanted to have a value added tax. Is there a Plan B for GST?
A: It may happen. I am not completely ruling it out, it may happen. But till now I am hoping that it would be possible for us to have convergence of views.
Q: There are certain areas where the action has been delayed inordinately, for example the insurance bill. Your government took a decision in 2004. We are now in 2010. The bill hasn’t gone through and that didn’t find any mention in terms of how do you or your government intends to address it. This country for the last 15 years has been struggling to get a new companies bill in place and we haven’t been able to do it. We had three-four changes of government and today you talked about setting up another authority. How allodable that authority is? The fact is that these pending legislations have not moved for years.
Q: But just in case the convergence becomes with some outliers becomes difficult. There could be a Plan B?
A: Let us see how we do it because we are talking a little bit. But we have to give a pause because of my engagement with my own work and the state budgets are also coming. They will have to do this. The Thirteenth Finance Commission recommendations have come.
Q: In fact that has empowered GST by putting out Rs 50,000 crore?
A: Rs 50,000 crore they have earmarked for it.
Q: They have earmarked for any contingency which may arise. So that has in fact made the task easier for the states also to get convinced?
A: No in fact in consultation with the states I referred to Finance Commission in the later part because they were talking of a few compensations and the final Thirteenth Finance Commission was operational at that point of time. They were working, doing their jobs. So I referred it to them that you also look into it. They appointed a task force, the task force made the recommendations and they have accepted it.
Q: Now to the Direct Tax Code (DTC). There of course it is administratively much more under the control of the Central Government and the Finance Ministry. Some of the concerns around DTC whether it's the definition of MAT on gross assets. That has got a lot of people exercises, that is not a fair imposition of the tax or EET versus EEE or the housing loans. Are these exercising the mind of the Finance Ministry- can we expect that there will be a discussed relief on these matters or is the mind closed?
A: As I started, when I released the discussion paper of the DTC, I addressed the audience that my mind is open. My mind is open. I have considered all these aspects and that is why I am confident that I will be able to implement DTC from April 1, 2011. Before that the legislative process is there and all these issues will be addressed to satisfaction of the persons concerned.
A: It is because of certain reasons. For the Companies Bill I think we will be able to get it done. It will be possible for us to have the consensus. However, there is a problem in respect of insurance, with banking and the pension bill.Q: What is the problem?
A: The problem was that we didn’t have a numerical majority in both houses of parliament without the support of the Left and other allied parties. Even after the introduction in 2004, we could not proceed further because after all the legislation has to be passed by the Parliament.
Similarly, though we are having a number but it is not adequate on our own to get the required magic number of 272 because that is a simple majority. In the Rajya Sabha, we don’t have even the combination. We are a little short of that but we are having it in Lok Sabha with the combination, with the coalition. Therefore, all the coalition partners have to be on board. We are working on this from day one. And that is why it is taking a little bit of time.Q: What about the engagement with the BJP because BJP is also very clear that in insurance they support about 49%?
A: I am not quite sure. At certain times it’s basically to manage the coalition. When you have a coalition, then one basic understanding is that you will take into account the concerns of the partners.
While making legislations and ignoring the concern of your partner, if you take the support from the others then your partner feels shaky and that weakens the very foundation of your coalition itself. It’s not an economic issue. It is basically a political management in a coalition government.Q: Are we then saying that this is on the backburner—in cold storage?
A: I am not saying that. We are working on on all these three bills, and it will be possible to have it. Here I am little more positive because after all we ourselves have enhanced our strength from 147 to 207 today and that is because we are nearer but still we had thought, had it been 272, perhaps it would not have been required, in the first session itself we could have done it.Q: I will come to even more ticklish issues, that is a bill which is more political than economic but it has a major impact on economic matters because you have given a thrust to infrastructure, you have given a fiscal thrust to infrastructure but until we can get the land acquisition bill passed, infrastructure will stay in the incremental lane in this country, it is not going to move at the desired pace that this country needs, what is the government doing there?
A: That we are discussing because it was to be introduced but one of our coalition partners expressed some concerns. So we are addressing those issues and I think it would be possible to get it passed.
Q: I agree there are cyclical factors but there is an endemic factor and that is low productivity—you need a new agricultural policy, you have been the most comprehensive reformer in country—the fact is all our reforms have been concentrated in trade, industry and investment—agriculture we have continued to have perhaps the most regulated sector, that really needs a new deal?
Q: Is it likely to happen only after the West Bengal elections?
A: Maybe even earlier but we are working on it. This in anyway is going to be passed—everybody is recognising the need of it. It is one thing from outside to make observations and oppose a particular policy and it is another thing when you feel the pinch being in the government.
So now everybody feels that there is a necessity of acquisition of land in order to have the developmental project and to get the clearance of land is taking quite some time.
To be very candid, in my Budget speech, I myself mentioned one of my concern that our delivery mechanism—if we cannot improve and if we cannot make change in the attitude of our governments—that alone can stand in the way of what India can be and what India should be. I myself have admitted it.
Q: I come to one more thing which I am sure you and the ministry must be very concerned about, the way inflation has come back in the economy, our gross domestic product (GDP) has swung by only 2% points, we have come from a low of 6% to close to 8% but inflation has swung from 0% to double digits. So clearly while there are a lot of factors and it is a complex phenomenon but one factor that clearly is coming out is that there are structural rigidities in our economy whether it is food, infrastructure or transport, all these things haven’t reached a stage where they will allow us to grow very fast, the specter of inflation will hang over you, so you have to ease the supply side?
A: We will have to deal with the supply side and the bottlenecks are to be removed. That is why many proposals which I have indicated in my Budget speech and also formulated the proposals are to improve the supply side. Take the case of three crucial areas which are responsible for high rise in the prices of food articles, edible oil, pulse and sugar. Edible oil and pulses we are in perpetual short supply even to the extent of 40% and 15%.
Therefore the 60,000 districts which I have earmarked to synchronise with the sixtieth year of the Republic that these are the districts where dry-land farming will be boosted and I have allocated Rs 400 crore for that mainly on these two items. I have even used—these will be the 60,000 villages not districts—that these will be the oilseed and pulse villages.
So in 60,000 villages if we can implement this programme of dry-land farming of course it is as per the recommendations of Swaminathan, he has worked on these and it will be possible for us to bridge that gap.
Sugar is a cyclical, just if you look at from 2007-2008 till date, two years there were adequate supply, two years there is short supply because the farmer shifted from sugarcane production to wheat and rice production when they, as per their calculation, found better returns in wheat and paddy than on sugarcane.
A: I entirely agree with you that we not only require new deal, we require another Green Revolution. But apart from that I have just indicated that if we simply sip the same technology which is available to us which has brought first Green Revolution in Punjab, Haryana and Western Uttar Pradesh, if I physically can shift to the eastern part which I have to do, Orissa, Bihar, West Bengal, Chhattisgarh, eastern UP then I can have adequate production at least in the medium-term; for the long-term our productivity is to be increased.
To encourage that the research and development, the weighted deduction which we have driven substantially—each area from 150% to 200% from 125% to 175% and in all school, colleges, universities 125% weighted deductions where the research will take place because this is area where our second Green Revolution will come. So we shall have to address these issues. If we cannot increase our productivity, no country can feed more than 120 crore population, it is for us to do that.Q: One of the last issues that I wanted to address today and that is an issue that exercises the mind of international community a lot when one talks to them. And this is the India versus China economic comparison because in 2009 we are the number one and number two growing economies. So there is always an inevitable comparison in every area. In 1978 as you would know the GDP of both the countries was the same. In fact India was ahead, India had more roads, India had more railways, in several areas India was ahead of China. In 30 years they have become 4 times our size where has our policy lagged behind and failed?
A: We were too late. They began in 1978. We started in 1991 with a lot of resistance, which we had to face. But it is still moving. And one positive point the political resistance which came in the initial stage with the change of government which brought political instability, but they brought stability in major economic policies. That is why today there is some sort of consensus.
Though occasionally, it does not appear to have some sort of consensus. But in the final run we have it. The short point that I was trying to drive at is that there is a systematic difference between the two systems and how they operate. It is easier in the Chinese system to implement the decisions than in our system.Q: Allow me to join in on that issue. In the first 30 years of our democracy we outstripped China, so democracy is not a weakness?
A: It is a strength. Democracy is a strength, because democracy helps you to sustain your progress and development. But at the same time in the decision making process, it is slow. Please remember that.Q: But do you at least concede that it is now imperative for India to - it is easy for a lot of Indian thinkers and leaders to say we are not in a race, we are not competing but the fact that you are competing in the world?
A: The fact of the matter is it is not a question of joining the race or in competition. The fact of the matter is I require a minimum of 10% growth to improve our conditions, to eradicate poverty. I require minimum 10% growth for a period of the next 10 years. This is a compulsion.
Today, we are producing 234 million tonne of grains. In the next 10-15 years we will have to double it. There is no way because we have to feed our own people. Requirement of food and food security essentially means production, procurement, distribution.Q: Are you now making a commitment to the country that this is something which is exercising the mind?
A: We have to have it.Q: We have to do that?
A: We shall have to do that. My industry must grow. Of course in the manufacturing sector we have achieved 18% growth.Q: That 18% is actually 9% over 2 years?
A: Yes. That is true. But I must have on a minimum sustainable basis around 12% growth in industry, and around 4% growth in agriculture.