New Delhi: Pranab Mukherjee's interview with Dr Prannoy Roy and TN Ninan
Q: How much disinvestment will be carried out during the next 2-3 years?
Pranab Mukherjee, Finance Minister: In fact I have not spelt it out but given a broad philosophy of disinvestment, where profit-making public enterprises are maintaining good profit, professional management and good proficiency, I will retain my 51 per cent minimum. But I would like to do it at the appropriate time and at the best prices I can get. I understand the market had high expectations that I would be more specific on it. But I could not be specific as this is not the time. I have to wait and make arrangements which will be totally transparent. I would not like to repeat cases which have happened in the past. Therefore, I have given a broad philosophy that people have a stake in their money. So they will have a say in it. But it will have to spread at that appropriate level.
Q: But will there be substantial privatisation?
Pranab Mukherjee, Finance Minister: The substantial bit is a bit relative. I have indicated and it is my philosophy also, that people may or may not like it. I would not like to spend the family savings on my consumption expenditure. I would like to create new assets for myself. That is why I said in my budget speech, to the private sector, that I am deeply grateful to them and would like to have interaction with them about how we can work in a collaborative manner in future.
Q: You mentioned the stock market and the right price. You saw the reaction of the market today. What would you say to that?
Pranab Mukherjee, Finance Minister: My assessment is, perhaps it might be wrong but my expectation is that perhaps they expected too much and expectations are not bad particularly with the character of the govt. But they have not taken into account the fact that the external environment is not friendly. For example, export cannot go in India, when if you look at the export destination. The US is roughly 16-18% of exports, Japan, EU as a whole is 30-37%. So adding together these economies, where there is recession - until they improve our exports - whatever palliatives we may give them, cannot expect to jump, at the level of growth we have had for the last five years, which is now contributing around 30-38% of GDP. So it will take time. Therefore, any alternative for any finance minister will be to shift focus to domestic demand driven growth. And we have done a substantial step-up - this is not really popular. I want to inject these resources into the rural economy, to agriculture, rural infrastructure, so that people can spend, they can generate demand, they can generate demand in certain industrial sectors, which will help. And Rs 61,000 crore for farmers, please keep that in mind, between February 2009 and July 2010, I have added Rs 61,000 crore as additional assistance - Rs 20,000 at the hands of the state and Rs 41,000 thousand from the Centre. Both for central projects and centrally sponsored projects.
Q: How would you react to the criticism that the deficit is too high and the level of govt borrowing will raise interest rates and crowd out private activity?
Pranab Mukherjee, Finance Minister: That's the point. We have to ensure certain creative mechanism. Sitting with experts, I have to make sure that my borrowing should not elbow out the private sector when they have real requirement from the markets. So the absorption capacity of the market, keeping in view of what I shall have to do... Sitting with RBI other experts, we shall have to work out a mechanism. I am aware of this problem.
Q: Are you saying that in this whole stimulus you would want to involve the private sector?
Pranab Mukherjee, Finance Minister: Of course, that's my job and I am trying to do that.
Q: What the bankers would like is a clear plan, transparent, as to how this money is going to happen, so that they know the roll-out plan for it. Is it possible that RBI could do this so that they know that this is how it's going to be?
Pranab Mukherjee, Finance Minister: I will have an interaction with the board of directors in the RBI in the next couple of days and I will also meet the board of SEBI. With the bankers, I already had an interaction. This monetary policy, fiscal policy will have to go hand in hand, so that the economy gets benefit from that.
Q: You have abolished the FBT, but the same benefits you are taxing in other ways, in a way that you have brought the same benefits from the back door. Is that a correct assessment?
Pranab Mukherjee, Finance Minister: No it is not correct, FBT in its correct form has gone.
Q: But the same things will be taxed?
Pranab Mukherjee, Finance Minister: For FBT the major complaint came from the stakeholders that it is a compliance certificate.
Q: So you if don't loose revenue from abolishing FBT?
Pranab Mukherjee, Finance Minister: That's what I am saying, even my direct tax, FBT is tax neutral. I am waiting for the direct tax code to come and have an informed structured debate. I 'll put it on the way along with the papers and invite views from stakeholders and after taking that into account I shall bring the legislation in November.
Q: Do you assume growth will be 8-8.5 per cent including inflation?
Pranab Mukherjee, Finance Minister: If monsoon goes well. I cannot say that if it does not. The situation in global market is not yet comfortable and the revival is not very visible, but for India the situation is better as it is still a favourable destination for FIIs. Hope FDIs will also start coming soon. I don't know how the external factors will receive the budget but from what I have heard, Hong Kong and others have received it well. FIIs for the first couple of months are reasonably encouraging, although I am keeping my fingers crossed. I am expecting 7 per cent plus.
Q: So you think inflation will only be 1-1.5 per cent
Pranab Mukherjee, Finance Minister: Inflation will go up but not so suddenly, also depending on oil prices which will also not shoot so high. This is my assessment. I was also wondering why oil prices have suddenly gone up. I came to know that a big chunk of liquidity is being converted into oil. Otherwise why will prices shoot, although there is hardly any revival because they are converting liquidity into commodity. We are closely watching the common consumer price index.
Q: Some figure that you would like to quote on the disinvestment front to make up for fiscal deficit...
Pranab Mukherjee, Finance Minister: I would not like to quote any figure... let me work it out.
Q: More than Rs 1,000 crore?
(Pranab keeps quite)
Q: You made a major announcement that the Goods and Service Tax will be introduced in 9 months' time. There is a lot of preparatory work that needs to be done before the tax is introduced. I believe constitutional amendments are required, legislative changes are required; taxes have to be brought in one rate... so all the changes. Are you sure you can do it in 9 months?
Pranab Mukherjee, Finance Minister: That is the desirability, I am telling you and here I must compliment states' finance ministers, the Empowered Committee of State Finance Ministers. There is broad agreement on the structure of the text.
Q: But BJP states are saying it is not possible?
Pranab Mukherjee, Finance Minister: At the same time keep in mind they objected in case of VAT. If other states support then Constitutional amendment will not be a problem. When VAT was introduced, later on one after another they joined in and in respect of these the state governments, apart from their political rhetoric, when hard economic decisions are taken they work in conjunction of the central government on a number of occasions.
Q: So you are confident that you will do it by April?
Pranab Mukherjee, Finance Minister: I am confident in the sense that I derive my confidence from the assessment that the Empowered Committee of State Finance Ministers has given me. I am not deriving it on my own. Constitutional amendment can be possible and if it is desirable the two Goods and Service Taxes, which I have explained in my budget speech, will also be implemented.
Q: The Finance Ministry Task Force has done some numbers on actual level of tax that should come out for revenue into the Goods and Service Tax and from what there work suggests, that absolute level of tax will come down when Goods and Service Tax is introduced?
Pranab Mukherjee, Finance Minister: Yeah, yeah...
Q: So there would be a huge tax benefit to all taxpayers because of Goods and Service Tax?
Pranab Mukherjee, Finance Minister: But there will be greater compliance also. There will be two taxes - central and state, but fact of the matter is that it has been established that though there is no economic correlation, when tax rates are reduced there have been greater compliance and made it up much more.
Q: So central Goods and Service Tax will be 8-10%.
Pranab Mukherjee, Finance Minister: I will not like to speculate. Let me wait for the final report.
Q: That is the level that seems to be coming through?
Pranab Mukherjee, Finance Minister: Let the Financial Commission make its final recommendations by the end of October.
To be continued...