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Following is the text of Finance Minister Shri P. Chidambaram’s interview for BBC World, telecast on March 6, 2005 under “India Business Report” programme:
Question: When presenting the Union Budget it is almost impossible to keep everyone happy. But at the same time when you are the finance minister of a coalition government, you need to be very very good at that. Mr. Chidambaram thanks very much for joining us here on BBC World for Business Bites.
Its close to about a week since the Budget has actually been revealed and there is a fair amount of feed back from media and the industry. What is your view of the Budget?
FM: Well I think the Budget has been very well received by the people of India. There are narrow constituencies and like you said in your opening remark, it’s not possible to please each constituency fully or completely. By and large even the industry, the market, the corporate sector, all are happy. They think the Budget is pro growth. We have not strayed from the path of reforms. The way I look at it is that I addressed the immediate livelihood and other concerns of the very poor people of India. I have ensured that the engines of growth will keep humming and moving along. I believe we have done both. My party is happy and alliance partners are happy.
Question: How do you view it personally? How do you react to normal feedback and opinions? It is an interactive process….
FM: Well actually the process of Budget making in India has become rather interesting. During the run up to the Budget making in the last 10 –12 days there are a lot of speculative stories in the press and then there are reactions to that. So infact lot of the Budget making is influenced by the reactions. By and large we know what kind of feedback will come.
Question: I think there is tremendous amount of emphasis on the rural growth. I think we all know that at the end of the day a lot of implementations are going to be at the state government level and local bodies, so what is the central government going to do to ensure that the outlay results in outcome?
FM: Well I have made a specific mention about this in my speech. Between the Planning Commission and the Ministry of Finance we will put in place a mechanism that will measure the development outcomes of major programmes. This will happen in the next few weeks. We will try to get some external auditors to measure these outcomes. I am very clear that the financial outlays have to be converted into physical outcomes and we will measure this only by the physical outcomes.
Question: But how will that result in implementation? More or less there is scepticism that only 20% of the money actually reaches where it is supposed to reach.
FM: Let me give you an example. Let us suppose we set apart 1000 crores for roads and this is meant for rural India. What we are going to do is to monitor the spending of the money and ask for accounts for example. Let us say in every quarter whether a particular 1000 km of rural road is on track or not. And if the money is not being spent we are going to step in and ask why is the money not being spent.
Question: To move on to disinvestments. You have said that there is a corpus fund, and you have mentioned that 5000 crore will be generated in the next one-year and 50000 crore in the next five years, but there really isn’t a target that you have set for yourself?
FM: There is no need for a target. This targeting was complied because you wanted to bring the funds in the receipts of the Budget. It’s off Budget now. It’s a corpus fund now. Its neither a revenue receipt for me nor a capital receipt. This fund has been set up. We have a list of companies that will be approved by a Cabinet committee. We will do it once. Once the cabinet committee clears disinvestments in these companies upto 10 to 15 % percent, they will be disinvested and the money will go to the fund. There is no artificial pressure to raise the money by the 31 of March every year. I just have to raise it over a period of time. So this gives us much greater flexibility. Also the lead managers of the issue will have the flexibility to give us best price. Once the money goes into the fund then I will be able to invest the fund in public sector mutual funds and earn a return on it. Once the return is deployed into public sector spending then the people will see merit in this corpus fund and then the process will gather pace. But first I must gather some funds.
Question: While you are saying its not accountable…is it that you internally know your targets but you are not divulging it.
FM: I don’t have any fiscal targets. I just have a target that X number of companies should go and get listed in the market. And based on that in the first year we will be able to gather 5000 to 7000 crore, of course, if the companies are cleared by the cabinet committee.
Question: There has been criticism from Foreign Rating Agencies that the overall balance on fiscal deficit has not been matched to the extent that today we are running at 4.5 % of GDP in these high growth years, where you have a very good opportunity to correct the fiscal deficit.
FM: Not quiet right. You see these Foreign Rating Agencies don’t understand the compulsions that have come up because of the 12th finance commission. You see every time there is finance commission report, there is a big hit on the central Budget in the first year. This year has been particularly so because the whole pattern of the devolution of funds has changed. I no longer give loans to the state government…. I give grants. …and these grant amounts have been fixed irrespective of my revenues. Earlier it used to be a percentage of my revenues. Therefore the fiscal deficit could have gone up normally. But because of tight control over non-plan expenditure, I am projecting for fiscal deficit to actually come down by 0.2 % of GDP. In the current year we plan to end with 4.5 % of GDP and next year with 4.3% of GDP. According to the FRBM act I have to correct 0.3 %, I am able to correct only 0.2% but I am happy that there is some fiscal correction…and next year I am saying that we will resume the path towards fiscal correction.
Question: If you look at the fine print there is 29,000 crore, which has gone into state debt or that will be put in. If you look at it, apples to apples, would you still say that 4.5 to 4.3 will translate.
FM: Yes, you see if I had to borrow this 29,000 crores then I wouldn’t have to give grants to the same extent. If I am taking this as a borrowing on my account and lending it to the sates then I wouldn’t have to give the grants. So all the grants in the first year wouldn’t have been given. So you take into account 29000 then you need to subtract the grant amount.
Question: Because it does account for 0.8% of GDP?
FM: It is, but look at the grant amount I am giving. There is no need for states to borrow 29000 crores if they can raise the money otherwise. In fact I think after the 12th finance commission, they might fare better and borrow less than 29000.
Question: Is there any ace up your sleeve? You are very focused on bringing the fiscal deficit down.
FM: Last year also the same criticism was labelled but we ended the year with complying with the FBRM Act. I have not hidden anything.
Question: Let us talk about foreign direct investment…. you made a clear benchmark with China, but their labour laws are different, but if you did not have the political compulsions that you have, what would be the big steps that you would take to attract FDI. If you did not have the political constraints what are the steps you would take?
FM: I accept the context and the time. I can never even imagine a time without political constraints. We are not a majority party and I am hardly the head of the party. So I have to take into account various factors all the time. …. but as far as the current year is concerned, we already did consultation. I think we need to convince our partners, as we had done in banking and insurance. These are virgin territories that have opened up. The gap between India and China is not 1:10. It is much more. I hope the Investment Commission will bring in large doses of investment.
Question: The investments in Infrastructure is a concern. What do you oversee in the coming years in this sector?
FM: Government funds are being used largely for revenue expenditure. The bulk of the infrastructure needs to be built by public or private partnership. The SPV will give this a big boost. 10000 crore or $ 2 million is the amount SPV will raise. With this, huge amount of investment will flow. We will look for projects. We are open to large-scale participation.
Question: For real growth to happen in the country we need to improve the quality of jobs in the country. That is a different kind of challenge than what exists today. What is your view on that?
FM: For young men and women with low qualifications we need low skill jobs. This will give them a decent income. I also agree with you at the same time that we require highly skilled people to be highly competitive. So we have announced a skill development initiative. We are going to make sure that industry gets the people with the right skills. We are going to do both i.e. low skills and highly skilled jobs. We have to give it a bigger push this year.
Question: What’s your final word on fringe benefit taxation?
FM - Fringe benefit tax is here to stay. It’s a draft bill, which can be improved upon. It excludes legitimate business expenditure. In addition to certain other perks, I am giving these fringe benefits. The concern is about the unknown. The rules will be made in great detail will say how to calculate the “cost to company” by applying best international accounting standards.
Question: The other specific is cash withdrawal tax….
FM: Its not intended to be a revenue creating measure. If you don’t track all transactions it is possible for the suspect to slip through the net. There are various ways in which the banking system is being used to get the money. We will take a look at it. I think more and more people are accepting it and the intention is not to tax but to track. It’s a novel idea and any novel idea raises suspension. Maybe I should have been a little more sensitive to the numbers involved. We will see…
Question: The Budget every year becomes a tent pole event in India every year. You have sensibly announced a couple of strategic policies in this Budget. Do you think this will become a non-event ever?
FM: It’s a theatre! No it will not become a non-event. I am going to focus more on the financial aspects. It must become more of financial statement announcement. When a policy is ready we must announce it. I am going to push for policies announced every two months.
BSC/BY/DT/CS-131/05
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