Financial Daily from THE HINDU group of publications
Saturday, Mar 02, 2002
Industry & Economy
`One can't have a road-map every year'
NEW DELHI, March 1
A DAY after Mr Yashwant Sinha presented his fifth successive Budget, which was panned by critics for lacking direction, he was back in office to counter the criticism and to put across his perspective.
Initial reactions to your Budget have been negative with some critics saying that it would not stimulate demand or boost investment...
My impression after presentation of five Budgets is that first reactions are often misleading, be it good or bad. The Budget is a complex exercise, documents are so many and the Finance Bill has several provisions, which become clear only when the fine print is read.
Although my Budget speech lasted for over an hour and forty minutes, there were several areas, which I could not elaborate upon. The first reactions are often incomplete as they are based on whatever is heard. The reactions are more considered when the provisions sink in. I am hoping that in the coming days, the reaction from all quarters will be better than the immediate ones.
Your predecessors have not been charitable either...
Both my former colleagues, Dr Manmohan Singh and Mr P. Chidambaram have political compulsions. I heard Mr Chidambaram say that I could have refrained from imposing the 5 per cent surcharge to mobilise around Rs 1,000 crore and averted all the criticism. The figure he was quoting was the amount raised during his tenure as the Finance Minister.
The situation has changed considerably. It is only the Finance Minister of the day who has the total picture on the economy, as he is flooded constantly with inputs and is also in a position to project future better. Former Finance Ministers do not have the complete picture.
In fact, I told Mr Chidambaram that the big picture was there in last year's Budget, which gave away close to Rs 16,000 to Rs 17,000 crore to corporates.
What has been the central theme of your Budget this time?
What I have basically done this year is to extend, deepen and consolidate the reforms programme. The contours of the last four Budgets are clear to me. But I simply cannot come out with a road-map every year. Moreover, you must realise that when you are preparing the Budget of a complex country like India, there are many constituencies, each in their own right and will react in their own way. Often the reactions are in contradiction with each other. Economists have a different view, farmers another. Essentially, each constituency reacts in its own way and it is tough to please all. Even after last year's Budget, there were some people who were disappointed.
There has also been criticism about the failure of your Budget to address the problem of fiscal deficit.
I have already said that I am not at all happy about the projected fiscal deficit of 5.3 per cent for the ensuing fiscal and the estimated 5.7 per cent in the current fiscal. If you look at my record of fiscal deficits, my Budgets had to take on the burden arising from the Fifth Pay Commission. This has impacted the fiscal situation of both the Centre and the States and that too on a continuing basis.
My predecessor Mr Chidambaram walked out of the meeting when the then Government agreed for payouts, which were higher than what were recommended by the commission. Had the then Government just accepted the commission's recommendations, the situation would have been different. I would not have had to take the unpopular task of cutting down flab in Government and slashing the interest rates on small savings and my Budgets would have shown a lower fiscal deficit.
You spoke of reintroduction of the Fiscal Responsibility and Budget Management Bill during this session. Will the Government accept the recommendations of the Standing Committee on Finance and dilute the major provisions?
Yes, we have reviewed the recommendations of the Parliamentary Standing Committee on the Fiscal Responsibility and Budget Management Bill and will be taking our recommendations to the Union Cabinet. At this stage, I really would not be in a position to give the views formulated by Government.
Given the wide variation between your budgeted and revised estimates, questions have been raised about the sanctity of the Budget numbers.
The revised estimates for 2001-02 project a revenue shortfall of Rs 20,000 crore. But remember, the Budget had giveaways of close to Rs 16,000 to Rs 17,000 crore. If I net this amount out, my tax shortfall would have been in the region of around Rs 4,000 crore.
Much of the additional resource mobilisation this time around is on the petroleum side. The incremental revenues, on account of raising taxes and other levies, work out to Rs 7,700 crore. Consumers too have benefited, having to pay lesser for petrol and diesel.
As far as the direct taxes are concerned, the revenue gain is Rs 6,000 crore. This includes the surcharge component of Rs 2,750 crore, which is the only burden on the taxpayer. In this Budget I have been cautious, projecting revenue growth at around 11 per cent. A trend analysis of data on revenue collections for over the last 10 years or so indicates a growth rate of this order in revenue collections.
Gross tax collections are projected to touch Rs 2,35,800 crore in the ensuing fiscal as compared to Rs 1,96,693 crore in the revised estimate for 2001-02. I do not think I have been ambitious in my revenue projections. If there is an industrial recovery, the growth in revenues could be better.
You have admitted quite often that the real interest rates in India are quite high. Given the expectations of lowering of the borrowing cost based on further cut in the interest rate on small savings products, was not the 50 basis points cut announced too marginal to make a difference?
The reduction in administered interest rates by 50 basis points has evoked different reactions. While there are segments, particularly the retired class, which is unhappy about the cut there are others who reckon that it should have been higher. The retired class is only looking at interest earnings on contributions to small savings products. This segment is, however, not looking at the benefits of the historically low inflation rate. I took a considered view and settled for a 50 basis point cut. The revised rates of interest on small saving instruments, which have come into force from Friday, will hold for a year. Beginning next fiscal, interest rates will be on the automatic route, being benchmarked to the average annual yields of Government Securities of equivalent maturity in the secondary market.
Why have you gone slow on outlining a strategy for food management?
On food management, I had put forth the idea of decentralised procurement, but this did not find favour with the States. Since our options at this point are limited, we thought it would be more appropriate to take action on this front only after examining the recommendations of the Abhijit Sen Committee on Grain Policy, which will be submitting its report shortly.
I agree we are clearly in a jam as far as the food subsidy bill is concerned. The subsidy is projected to touch Rs 21,200 crore as compared to the revised estimate of Rs 17,612 crore in 2001-02. Raising the issue prices will be counter-productive as it will impact offtake from the public distribution system.
So we have take a number of steps to reduce mounting food stocks including launching of a major `Food for Work' programme under the Sampoorna Grameen Rojgar Yojana, Annapoorna and Antodaya schemes. The crucial issue we have to look into is to what extent we can continue support to the farmers.
Why have you gone slow on pension reforms, particularly when the IRDA had suggested that the Government should nominate the regulator by December end?
On the pension regulatory front, the Government has to make up its mind whether to go by the IRDA report's recommendation of having the insurance regulator as the regulator or the earlier OASIS report on old-age security, which had suggested an entirely separate regulator for the sector. The prevailing view in the Finance Ministry is that the IRDA should regulate this sector.
With two committees having presented divergent views on the restructuring of the UTI, what is the Government's view?
Yes, there is a difference of opinion on the restructuring between the two committees. We have asked UTI to come up with suggestions on this. I am sure that the JPC will also have something to say on this aspect. We will take a final view after the JPC submits its report.
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