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Pranab admits Budget could have been better

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Amidst hopes of fixings the 3 'D's - fiscal deficit, current account deficit and government deficit, Finance Minister Pranab Mukherjee announced the Union Budget 2011-12 on Monday.
In an exclusive interview with Network18 founder-promoter Raghav Bahl, Mukherjee admits that he "could have done better with the budget".
A strong believer of 'even the best can be improved', Pranab says, "Real reform is change in the functioning of the government. It does not always mean that it should attract headlines. Reform is when it affects the lives of the common man."
The challenge now is to bring consensus among the political parties; to narrow down the divergence of views on GST this year as "it is not possible to implement GST without the support of state governments. And, I am ready to go extra mile to get state governments on board for GST".
Raghav Bahl: Hello and welcome to this very special interview with Finance Minister Pranab Mukherjee after his Budget which has been widely credited of being a 'no-problem' Budget. My first question is, you came at this Budget with a very buoyant revenue, but with also a fairly depleted political capital of the government. Did that constraint you any way?
Pranab Mukherjee: Not really. Because you know as an old hat in the political activists, I have seen sometimes there may be a situation where ruling party or government as such faces a lot of problems, criticism from different quarters. So, it really did not affect that much. My undivided attention was to address the economic problems which we have confronted and how best I can address them through the instrumentality of Budget.
Raghav Bahl: So my follow up to that really is that you know the crisis as you know more than anybody else, you have been in politics for so long. A crisis is actually an opportunity in politics because you can sometimes push through much more difficult times, a policy that you could have in good times. In that sense, do you think you've used the crisis in the best possible manner or could you have wasted a bit of this crisis?
Pranab Mukherjee: No, definitely, I could have done, I am a person who always believes that I could have done better, because I believe in the philosophy that even the best can be improved. So, from that point of view, I will respond to your question by saying yes, I could have done better. But at the same time, what I have done because I have given clear directions towards tax reforms. I have given clear direction for need of fiscal consolidation by reducing the fiscal deficit. I have also given clear direction that reform does not always mean that you should attract the headline. Real reform is change in the functioning of the government, change in the policies and its implementation which will affect the life of aam aadmi. That is the type of reforms which we require. I indicate, if I can have direct tax code after Parliamentary standing committee gives its recommendations which they are examining right now, perhaps it will be possible to implement it from April 1 2012.
Raghav Bahl: But goods and services?
Pranab Mukherjee: yes, I'm coming to that. ED requires the political consensus because without the support of all the major political parties in Parliament, I can't have 2/3rd majority to amend the Constitution. Without the support of the state governments, it would not be possible to implement it. So, therefore, this is a challenge to bring consensus amongst the political parties which I do feel, I will exercise the entire period of this year to narrow the divergences of our views.
Raghav Bahl: This is exactly what we had spoken about last year as well when we spoke. And if someone like you who possibly has the largest amount of cross party relationships and respect with other political leaders, if you are finding it that difficult, then this doesn't give too much confidence to people that it will be done even in this 12 month period that you were speaking about?
Pranab Mukherjee: No, but one point you shall have to keep in mind, in that way we are again going back to ourselves, sometimes it appears that from our behaviour, from our attitude or approach, that we have reached a stage where the positions cannot be reconciled. When the entire winter session was washed out, many people thought that it is again going to reflect in the Budget session. The same persons sat together, and we have been able to find out a mechanism.
Raghav Bahl: So, picking up from that. Since the mechanism was that the government agreed to what the Opposition was asking for, in this. Are we therefore saying that you as a Central Government, are now going to come at this negotiation with a far greater sense of accommodation of the state's demands or the sates' point of view?
Pranab Mukherjee: I have always said that I am ready to cover an extra mile to achieve the objective which is in the larger interest for the people.
Raghav Bahl: So, what is it that you can do, because if you remember Sir, if I could just embellish my question. Last time, when we had spoken, and I had asked you whether you have a plan B, in case there is a logjam, and you smiled and said 'Yes, there is a plan.' But we didn't see that plan B in operation today.
Pranab Mukherjee: No, but what I have done. If you have just analysed, I have aligned the rate, merit rate of the State VAT is 5 per cent, exempted list in the State VAT is 99 items, 100, and nearing that there were 370 items which were in the exempted list so far as Centre is concerned, I have brought 130 items this year within tax net of one per cent.
Raghav Bahl: CST, you didn't do anything.
Pranab Mukherjee: We are working on it because CST was temporary. Please remember this. It was expected as GST will be operational earlier, therefore, it was to cover the period during that period. And thereby, something was to be done by the state, for instance, adjustment of the VAT, for instance, they have adjusted 5 per cent, from 4 per cent to 5 per cent, largely in this year. CST part, I am doing it now, about the compensation even in the 13th finance commission, they have indicated about Rs 50,000 crore will be available to them.
Raghav Bahl: But more money?
Pranab Mukherjee: If there is a requirement for more money. I don't mind providing that. But therefore, I can assure the states that there would be no revenue loss. But certain other things are also to be done, I'm telling you just taking few seconds more, to indicate, that IT platform which is very important and several chief ministers told me that unless IT platform is ready, it would be very difficult to implement it. There has been substantial progress in the IT platform. NSDCL is going to start the pilot projects with 11 states. So ground is slowly, and these are not the big tickets that capture the headlines, but work is being done in those areas.
Raghav Bahl: So, can you lay out a timeline for us Sir?
Pranab Mukherjee: It is very difficult to lay out a timeline. Even for the Constitutional Amendment, which I am going to introduce, it is not that there will be no discussion further. It will be discussed in the standing committee, it will be discussed in the Parliament in which it will be passed. And as I said, without the support of the principal opposition parties and others it cannot be passed. So we shall have to come together.
Raghav Bahl: Till April 2012 it is also something that is not likely to happen? Are you quite confident that with your views you will use all the political capital that you have?
Pranab Mukherjee: No, let us not take the extreme. We are trying with the hope that we shall be able to succeed. But there may be some problems. The shortfall which I am trying to drive at that it is not that appears to be positioned, is reconcilable. It is not like that. Yes, there are divergences of the views, but their convergence is also emerging, gradually, more and more states are coming around.
Raghav Bahl: I now want to switch from GST and try to understand some Budgetary arithmetic. You are actually one of the few Budgets we were seeing the subsidy in your arithmetic coming down, but we want to understand how this is happening? Clearly, the only way in my simplistic mind it can happen is, if we move towards pre-pricing of diesel and cut petrol subsidies. Is that something that you have factored in your calculation?
Pranab Mukherjee: What we have done is we have decided that certain petrol prices will be marketed and it is from last June onwards.
Raghav Bahl: That is done.
Pranab Mukherjee: Now for the diesel, we have decided that it will be done at the appropriate time, it has not yet been decided.
Raghav Bahl: But the level of subsidy that you have shown Sir, seems to suggest that the appropriate time is going to be very quick?
Pranab Mukherjee: Let us not prejudge at what time we are going to do it, because on oil it will be too premature to make any comment because the situation is so volatile. At what level it will settle, nobody can say.
Raghav Bahl: So that's another question. So what have you assumed the price of oil in your budgetary speech?
Pranab Mukherjee: If I say X amount today, it may be X+X+X. If I say that it is a substantial quantum I may gain, it can be depending on the international situation. I will give you an example between August 2008 and January 2009, Aug 2008, prices per barrel went as high as $ 147, January it came down to in the neighbourhood of $ 50 per barrel. Therefore, it is fluctuating so much that any assessment would be too premature, particularly at this point of time. Therefore, my direction is that subsidies are to be reduced. What I'm going to do in these two sectors, kerosene, fertilizer and LPG, there I would like to go directly to the consumers.
Raghav Bahl: But you have only got a task force that has been constituted?
Pranab Mukherjee: That is why I have fixed the deadline. By June of this year they will give their recommendations. And I have also stated that I am hopeful that by March 2012 I will be able to implement it. And the person who has been entrusted with this job, everybody in the country has great faith in his competence and capacity to deliver.
Raghav Bahl: But are we saying that by March 2012 there will be direct cash transfers all across the country in these three items, or are we talking about a task force whose recommendations will be with us and we will begin to act on them in some pilot or phased manner?
Pranab Mukherjee: It depends on what type of recommendations come. But it is very simple. You just now juxtaposed it with the release of the Aadhaar numbers which are also being done. The number will be generated to the extent of 10 lakh per day at some point of time.
So with the help of this number plus the recommendations which they make and the sentiment which is prevailing right now, everybody agrees that kerosene is highly misused and the concession is abused. It is diverted for other purposes and not meant for consumers for whom these subsidies are based. Therefore it will be would be easier to implement.
Raghav Bahl: The move will be radical, and as we have seen radical moves don’t happen in our country. Therefore these questions that by March, are you saying that subsidy in all these three items will be directly cash transferred to the targeted beneficiaries?
Pranab Mukherjee: I will be able to do a substantial number because the number is also limited below poverty line.
Raghav Bahl: But the Aadhaar cards are even at the rate at which you are saying 10 lakh per day will be about 20 crore out of a 120 crore people. So, just the Aadhaar cards even if everything happens according to the numbers that you have given.
Pranab Mukherjee: I will be able to cover it at least partly.
Raghav Bahl: That’s what I am saying. So it will be a phased rolling?
Pranab Mukherjee: Because a number is required, mechanism is required. Even if I take the number, the Planning Commission will give me the final number of the BPL families. It will go by the Tendulkar Committee's number that will be 8.5 crore families. That multiplied by 5 is about 42.5 crore people.
Raghav Bahl: As I said that would be a radical thing if it happens, it will be a fundamental reform. So we keep our fingers crossed on that. Another thing that did not find as much political mention in your speech as one would have imagined it would have was inflation, you talked about it but it did not find front off, top of mind space in your speech. I know there is lot of talk today what is causing this inflation and is it structural, is it supply side, or is it demand side. But whatever else maybe causing whether it is in our control or not in our control, one thing is for sure that the high amount of government fiscal borrowing are responsible because a lot of the government’s fiscal deficit today is going to finance consumption in the economy because the consumption element has gone up. I was quite surprised at a statistic that in the last two years nominal GDP has grown only about 40% but government borrowing has gone up nearly 4 times. So there is a cause of inflation lying right there in front of you?
Pranab Mukherjee: That is why the emphasis has been on fiscal consolidation, and to reduce the government debt. I have given the percentage as well.
If you look at the budgetary figures, you will find that in absolute terms the quantum of borrowing next year will be almost at the same level of the current year, which is flat. That is the objective and it is not merely an objective but we are reaching there, we are trying to do it.
Take the case of fiscal deficit. I indicated in my last year’s budget speech that it would be 5.6%. But when I found that I can manage, when I got unexpected revenue from the non-tax side, when there was revenue buoyancy, I said it can be reduced. I did not hesitate, I did not squander out that money by going for some other programmes which could have made me popular politically. I did not indulge in the populist approach for utilization of that money; I utilized it to reduce the fiscal deficit. The signal is quite clear.
Raghav Bahl: Any windfall that you can visibly see this year like the 3G licences which were Rs 100,000 crore almost, almost 1.5% of your GDP came from that. Anything that you can foresee or are you going to rely entirely on correct implementation of the budget?
Pranab Mukherjee: I would like to wait for that correct implementation and I will not indulge in guessing or just announcing it prematurely. In the 2009-10 budget I indicated that I should get Rs 35,000 crore through the auction of 3G spectrum. When we were moving towards the end of the budget, I was advised by my advisor that we can wait and we can manage this year’s financial situation and let us wait for good times in the next year.
I listened to that advice and waited for the next year. Even in the parliament there was some criticism that you had promised and not made any moves. I said I will make a move but not by March 31. I will make a move after March 31 and this little rescheduling has paid me dividends.
This year also I have done it, and I have no hesitation in telling you that. My target was Rs 40,000 crore, I have done Rs 22,000 crore. It was not very difficult for me to go another Rs 10,000-15000 crore. But I thought that perhaps I can wait for better times when this will fetch that real amount which I require.
Raghav Bahl: The absorptive capacity of the Indian economy and that’s also related to inflation and structural inflation. Three times in the last decade, three times we have come close to 9% GDP growth and see what happened; inflation has spiked to double digits, interest rates have gone up to 13% and 14%, all three times. So now three times cannot be a coincidence. Clearly this economy today doesn’t have the absorptive capacity to grow at 9% without creating these imbalances in the economy. What are you doing about that sir? We didn’t hear anything from you on what you would do to increase the absorptive capacity of the economy for instance the Land Acquisition Bill. There was a great expectation that you would talk about this for instance FDI, a much more liberal FDI policy also in retail, all these things will enhance the absorptive capacity. In both these things you just did not talk about your budget?
Pranab Mukherjee: On FDI I have spoken, of course it is in general terms because many things are to be done. That’s why in my approach towards reforms I said that you should not run after the big tickets which will capture headline. Much more work could be done silently by changing the guidelines, changing the policy formulations which will inspire confidence. I am trying to do that in FDI.
Raghav Bahl: Is that why one would think that you were silent on the word retail, you did not even use that in your two hour speech?
Pranab Mukherjee: I did not use the budgetary exercise as an announcement of a policy unless I am quite confident that I am going to do it within a specified period of time which I am going to do, for which I am not to depend on others. Therefore that is one approach. You may call it conservative or whatever it may be, but I have that. During all these years I've followed that.
But that is not the question. But take what I have done for investments in the bond market for FIIs.
Raghav Bahl: But that was a bold move and it came right at the front of your budget and therefore created a lot of excitement that a lot more would happen, but you stopped at that, you didn’t go beyond that?
Pranab Mukherjee: Because the world is not coming to an end today. Again let me remind you that I had to formulate the budgetary exercise in an atmosphere where there is a lot of uncertainty all over the world. Uncertainty on commodity prices including fuel, uncertainty about the European recovery in its full swing because of the impending shadow of the adverse impact of high sovereign debt.
Raghav Bahl: But all the more reason – the one big country last year, which lost FDI was India. All other big countries, which were gaining FDI actually gained more. So this is something that should have exercised the mind of the FM, and I am sure it is. But it didn’t find a mention in the budget speech, especially as I said FDI in retail. You could have said I am going to do it with a lot of protective shield around it.
Pranab Mukherjee: That is a way of presentation. But the fact of the matter is I have stated that if I am to address our problem of current account deficit, I will have to depend on the steady flow. The question is how to finance the current account deficit. The current mode of financing the current account deficit with volatile resources. And volatile resources are not acceptable.
That is worrisome. Therefore I used the word 'concerned' when talking about current account deficit. And there also I said, perhaps during the year we will be able to take corrective steps where it would be smaller and manageable financing in the way, which will not cause any risk.
Raghav Bahl: But clearly for a liberal FDI regime in this country, the two things that are vital is insurance. We must do it now, it was a policy announced seven years ago and we still have not been able to pass the bill. And FDI in retail where you, your government has actually been bold enough to float a very forward-looking discussion paper on which a lot of feedback has come and therefore there was an expectation that it would happen this time, and that atleast it would find top of the mind mention in your budget speech. But I found complete silence, radio silence on that?
Pranab Mukherjee: I am silent because unless I am in a firm position to move ahead, there is no point in making any premature announcements.
Raghav Bahl: What about the land acquisition law, that you yourself introduced?
Pranab Mukherjee: You will have to understand one point. Yes, it is the requirement of the economy, which demands sound economic policies. But at the same time we will have to be practical.
If I had 272 in Lok Sabha and if we had 124 in Rajya Sabha, I would not have bothered about because I had the experience. I had the experience of working in a government where number was not the question. We could have done many legislations. And we could have done many important legislations for the first time amending the constitution. To introduce the Consignment Bill in 1982, I did not have to wait for anybody else because we had enough numbers.
If we do not have enough numbers and if we are to depend on others, you cannot expect me to have the same approach. We will have to accommodate them, we will have to carry them with us. As you have mentioned about the insurance sector, it is true. We had to postpone many of these acts because we were not quite confident that we will get the requisite number. I cannot be Don Quixote with a win-win.
But why I am saying it this time, because I have already started sounding, and I require the support of the others through which we can get this legislation done.
Raghav Bahl: Including the land acquisition.
Pranab Mukherjee: I have indicated that we have not finalised the land acquisition in the Cabinet. Until we do that, it would not be possible. But other than that, I have listed nine items.
Raghav Bahl: There is also a thought and I don’t know how you would like to handle it. There is also the thought that after the May elections are over, particularly the West Bengal Elections are over, that some of these legislative activity will get fresh impetus and the government will be able to move faster? Should we be expecting this?
Pranab Mukherjee: There is no correlation with the election. Why I am saying that is because if you look at the parliamentary activity, during the budget session of parliament it becomes very difficult to make any major legislations. The entire time is devoted on the items which are prefixed - rail budget, general budget, appropriation bill, finance bill, demands for grants.
Raghav Bahl: But in the monsoon session?
Pranab Mukherjee: In the monsoon session of course. Legislative business is normally being done throughout the period. Unfortunately, we lost the winter session. Otherwise some of these we could have done at that point of time.
Raghav Bahl: I am sure you are aware that a report was published last week by Citibank which is one of the largest financial institutions in the world. I think it was the first report from such a reputed large institution which said that by 2050, India could become the largest economy in the world. It is the first report which is published that says that India could overtake even China by 2050? Does it excite you as a Finance Minister of India that that possibility exists and therefore we need to be far more vigorous in our policy implementation to reach that goal?
Pranab Mukherjee: Not only vigorously, but we shall have to create it. In the peroration part of my budget speech, I'd said that that we can take on, we can move forward. Let us keep aside our difference, but we will have as a functional multi-party democratic system divergences of opinion. We will have political differences. But when the broad national interest comes, let us march ahead.
I must say that more than often we have done it. That is why I am confident. And that is the aspiration of young India which I have mentioned in another part of the speech and we shall have to fulfill that. Whether it is 2050 or whether it is earlier or whether it is later, nobody can stop India from moving ahead despite these difficulties.
And if you allow me, I will draw a parallel when Panditji (Jawaharlal Nehru) introduced the Adult Franchise in India, one of the critics was, Sir Anthony Eden, who was a good friend of Panditji but at the same time he was very critical that a fine, sophisticated instrument like parliamentary democracy based on adult suffrage, Jawaharlal Nehru is introducing in India where it will be a futile exercise.
But today nobody speaks of that. And later on in the mid-50s, Sir Anthony Eden himself said my assessment was wrong. India one day may emerge as the largest functional democracy, not in presidential form, but in parliamentary form. That has actually happened.

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