In an exclusive interview post vote-on account, ET NOW's Policy Editor Supriya Shrinate and Finance Minister P. Chidambaram decode the Vote on Account, as the minister shares his outlook on the growth-inflation trade-off.
Headline 4.6% fiscal deficit may be impressive, but experts are not satisfied with the quality of fiscal adjustment? How satisfied are you yourself?
I am happy about the fiscal adjustment but this criticism about the quality of fiscal adjustment is misplaced. The fiscal adjustment can only be done by either sharply raising more revenues or by cutting expenditure. I know of no other way of achieving fiscal adjustment so we have achieved it by collecting as much revenues as we can and to the extent we cannot, we have cut expenditure. Please remember we have collected more than the budgeted estimate in non-tax revenues and to that extent expenditure has not been cut.
A lot of people are raising some questions on the special dividends that were taken from PSU or cross holding that happened because that was not really divestment in the true sense. I know you are going to say the government is the majority owner, you have every right to take money back from PSUs who are in any case not going to use but there are questions that are being raised around that, what's your defence?
Divestment is one way of raising resources. We ask the companies to use whatever money they have for capital expenditure or if they are not able to use the money to return to the shareholder is a well accepted way, private sector does it too, so what is unusual about it. That is the owner's money and the owner is saying if you have no use for the money please return a part of it to me because I have other legitimate uses for that money.
While you have been very ambitious in achieving your target this year be it CAD which has been contained at $45 billion, fiscal deficit at 4.6% you have set very ambitious target for whoever occupies office next fiscal. 4.1% fiscal deficit for the next year, 6% growth rate, revenue deficit of just about 3%, these are ambitious targets and you are working with the nominal GDP growth rate of 13.4%, is it fair to set such aggressive targets for next fiscal?
Didn't you say more or less the same thing last year when I set the target of 4.8% for this year, but we achieved it and even bettered it. Let my party be voted back to government and we will show you how we can achieve this target.
If your party is not going to be voted back to government because this is politics and it is a game of uncertainties, haven't you then set the ball rolling for the next finance minister by making his job rather tough?
If my party is not voted to government and God forbid some other party is, they can still seek our advice how to go about it.
You have cut the excise duty to bring revival back in the capital goods sector. But if projects worth Rs 6.6 lakh crore have not been able to revive it, will excise duty do the trick?
The comparison is not correct. Projects are moving forward and there is an uptick in cement and steel, which means that construction is taking place. The PMI index is above 50, which means manufacturing is taking place. Yes, some sectors are badly affected like capital goods, consumer non-durables, and that is why we have given relief to goods falling under Chapter 84 and 85. However, across the board, it is not correct to say that no sector is showing an uptick.
But the uptick is not in tandem with Rs 6.6 lakh crore worth of projects that have been cleared.
You need to understand that we have cleared the blocks standing in the way of the project moving forward. That does not mean the other approvals down the line, which have to be obtained, can be done away with. For example, one would still have to obtain the municipal clearance, clearance for water connection, clearance for electricity from the local discom or the local electricity supply company, clearance for laying of road, fire safety clearance, security clearance. The CCI has cleared only one block which has completely brought the project to a standstill.
I agree the CCI clearance is a well intended move, but the outcome is not reflecting and that’s because investment isn’t breaking ground.
So, what are state governments doing? They should set up their own CCI and ensure that all the clearances at the state and municipal levels are expeditiously given.
But is it not a lost cause then, to clear projects and not see investments come in?
It is not a lost cause, but simply spurring the state governments to do their part. Since every project is located in one state or another, the state governments must play their part and give whatever clearances they have to give.
You have tried to accelerate Motown It has been perhaps the worst decade for the auto sector. So, why could the excuse duty cuts announced in your speech, not have come in a little earlier, it would have been a booster shot then?
We needed data because we cannot act without data. The data pointed to a slowdown only in the last five months. Secondly, in the last year’s budget, there was no headroom for any tax concessions because we were faced with even greater challenge of a downgrade, of flipping over into fiscal instability. We had to address that last year. Now, since we have stabilised the economy in good measure, this year we have acted in order to give some relief to the stressed sectors.
Do you think this relief should last all through next fiscal too, and not just for the next four months?
I do not want to anticipate what the finance minister of the day in June or July will do, but if my party is voted to power, I am sure they will take my advice.
You have not given into populist temptation, but many people believe your vote on account was targeted at ratings agencies.
The rating agencies were satisfied several months ago. It is only the media and the analysts who were questioning our credibility. Today, we have the capacity to address the concern of the stressed sectors and we have addressed those concerns.
No one can fault you on intent, you have brought in a lot of reforms. But is there a sense of disappointment as you get ready to demit office that you could not revive growth?
There is no doubt that growth is reviving. We clocked 4.4% in Q1 of the current year, 4.8% in Q2, 5.2% at the minimum in Q3 and Q4 taken together. It shows that growth is coming back at the rate of about 0.4% per quarter. The G20 finance ministers will be very envious of our record. I am not happy, but the point is we have pulled back and we are growing.
It was in your regime that India had a growth rate of over 8%, and which is why to end this fiscal at sub 5% for two years in a row is disappointing,. Also because when you assumed office again expectations were high growth will be accelerated, that didn’t happen?
You must look at the objective conditions. At the beginning of the fiscal year 2012-2013, the fiscal deficit was in excess of 6% and inflation was in excess of 10%. On the 1st of August when I came back, I had to deal with that data, which pointed out that the fiscal deficit will cross 6% and inflation will hover around 10%. Now, we have pulled back today our fiscal deficit and next year, it will be only 4.1%. I have no doubt we will do better than 4.1%, if we follow my prescriptions and the inflation is moderated to 5%.
As you rose to present your vote-on-account, were you disappointed that you were the same Finance Minister who reported an 8% growth rate?
Of course, not only I, everybody is disappointed that we were not able to repeat that 8% growth. However, please remember that no country in the world is reporting a growth rate today, which it was reporting four or five years ago, including China. Every country has slowed down and we are not unaffected by what is happening to the rest of the world.
As voters go to vote, do you fear they will have the sub 5% growth rate in mind or will they look at the average growth rate of your government?
When voters go to vote, they will recall that the world went through a crisis. The world went into recession in 2008 and the eurozone plunged into a deeper crisis in 2011 and 2012. The most powerful economies of the world - China and the US - have dropped their growth rates. So there is no point talking about India as if India functions in isolation. Maybe, in hindsight it is possible to say that some decisions should have been taken differently, but nobody has the wisdom of the hindsight at the time decision is taken.
You have nudged the RBI to ease its monetary policy stance, in your speech you said a high growth will entail moderate inflation. Has RBI fought inflation too long, and should it be more accommodative of growth. Markets are scared that given the Urjit Patel report, there could be more rate hikes?
I am not telling RBI it should do this or do that. The RBI has assured me that the Urjit Patel Committee report will be discussed with the government and no decisions will be taken unilaterally. Remember the Urjit Patel Committee report is not an RBI report -- it is a report by a committee appointed by the RBI. It has to go back to the RBI board where the government’s representatives are there. It has to come to the government and then RBI and the government have to discuss the report together and decisions have to be taken.
What I said during my speech is a clear statement of intent that in a developing country, this government believes that there must be a balance between price stability and growth. I hope that the next government also will adhere to that policy too. That is a correct policy for a developing country and the monetary authority must abide by the government’s policy.
Has that balance between price stability and growth been distorted?
‘Distorted’ is a strong word; sometimes, not enough attention has been paid to that balance.
Is there a price you have paid on the fiscal front because of this?
We may have paid a price in terms of growth, but we may have also gained in taming inflation.
As you go into elections 2014, being the finance minister, if elections happen six months later, would the mood be very different?
I do not decide when elections take place. It is for the election commission to decide.
I am asking you would things be different after six months?
Things would be better six months later. One year later, they would be even better.
While you brought in many reforms on the FDI front, infrastructure and investment, you would have wanted to sign off on the GST and also DTC. While there is a political logjam and these reforms have not gone through, do you believe at one level there have not been enough talking that has happened on these reforms?
No, after I came back to the North Block, I took stock and met with the state finance minister on more than one occasion. Who blocked the GST? Everyone knows, every minister in that council knows that it is Madhya Pradesh and Gujarat which blocked the GST.
Some of the other states then joined the chorus. In case of DTC, the version that I had left behind when I moved to the home ministry was changed before it was introduced in Parliament. It was changed again in the standing committee. Hence, what came to me was a different version. Therefore, I had to spend many hours putting together an acceptable progressive DTC that took note of what the standing committee said, but also took note of what objective conditions require that is ready. However, there is no time to pass the law. Parliament has passed no laws in the last three sessions. Therefore, I do not think you can put the blame at the door of a government. The government has made every effort and I can speak for myself. Since I returned to North Block, I have made every effort to get the GST in Parliament and I made every effort to move the DTC forward.
Do you think the PM or the top leadership in the Congress party has not been able to communicate these reforms to people?
I cannot comment on what the Prime Minister spoke or not spoken. All I can say is at every forum, I have emphasised the importance of laws like GST and DTC. I have done my best, but our efforts have been thwarted. Now why they were thwarted? You are the best judge. When we go out and explain to the people, I will certainly bring to the notice of the people that while I have got adequate cooperation when I introduced VAT, I did not get adequate support when I wanted to introduce GST.
Every foreign investor we have spoken to alleges retrospective taxation has been the single biggest factor that has vitiated investor climate. In hindsight was retrospective taxation completely unavoidable?
I think you are exaggerating the problem. Firstly, it is not a retrospective law in the sense that it is a clarificatory law which has retroactive application, that is not the same as the retrospective law. The law was not changed, the law was always there. It was interpreted in one way, but the Bombay High Court who has interpreted in the opposite way by the Supreme Court.
After the party had won a case in the Supreme Court?
Parliament could have turned down the law. All those warriors against retrospectivity could have stopped the law in Parliament. They have stopped so many laws. Government proposed a law, Parliament adopted it and that law today has given rise to some concern among investors. I have tried to address the concern. I have gone out of my way to get the Cabinet to agree to a non-binding conciliation with Vodafone -- that is an unprecedented gesture by the Cabinet of India. Vodafone is buffeted with multiple legal advisors and is unable to make up its mind whether it wants to begin conciliation. The conciliation has not failed because it has not even begun. Hence, I have waited long enough for conciliation to begin and I am willing to wait for a little more time. However, at some point of time, we have to face the reality and say despite the best effort by the government, Vodafone is unwilling to begin conciliation.
You want to pull out the conciliation note because Vodafone cannot make up its mind. Is there a sense of disappointment that you could not bring about truce to this tax issue?
Of course I am disappointed and Vodafone also should be disappointed. However, it is for Vodafone to decide for the legal advice and say that yes we will join the conciliation.
Arvind Kejriwal is going to be targeting the very top notch of industry as he is harping on the whole point of a gas price hike. Is there a sense within the government that should be reviewed at any stage?
No, we have done it twice in the Cabinet. There was a decision and we reviewed the decisions. It has been reiterated and Mr. Moily has said it will come into force from the 1st of April. I do not think there is any case for a review now.
Kejriwal is not just criticizing politicians anymore, he is now targeting India Inc and MukeshAmbani specifically. How difficult is it to form policies at this stage because you never know what is going to be questioned and who will question it?
That is what a democracy is about. In a democracy, there is space even for ill-informed views and ill-founded criticism. Democracy allows for both wisdom and unwisdom.
Narendra Modi is supposed to be the BJP’s poster boy on development and growth. Do you fear the Indian voter does not care about Modi's majoritarianism? Or what happened in Gujarat in 2002? Do you voice that concern?
That will be a pity. It will be a pity if people do not take note of the undercurrent of his campaign which is majoritarianism, which is I, me and mine. In course of time, people will take note of that undercurrent and they will give their verdict. As far as we are concerned, we are very clear that our way of governance -- which I spelt out in the speech on Monday and which is respecting dissent, encouraging debate and taking a decision after consultation among elected representatives is the best way to govern. After all, we have lifted 140 million people above poverty in the last 10 years through this way of governance. There is no reason to abandon this way of governance and substitute it by either majoritarianism or this I, me, mine doctrine.
You are not just a Congress minister, you are also a member of the core group. Can Congress be so oblivious to the opinion polls. The numbers just aren't looking good for the UPA?
Please look at what the magazines and channels put out in 2009. Nobody gave us a chance to come back to power, be that as it may. We take opinion polls over the seriousness they deserve, but they are not the result of an election declared by an election commission.
If opinion polls will decide the results of an election, the President should simply commission a few opinion polls and swear in the government according to opinion polls.
What would you advise to the next finance minister? Whom do you think would occupy this office next?
I look forward to a young person from the Congress party from a progressive UPA to occupy this chair. I think the time has come to hand over the baton to a younger generation of highly qualified and capable people.
What would your advice be to him?
My advice to him is trust your judgment and do what is right.
Catch the exclusive only on ET NOW at 6:30, 8:30 and 9:30pm today, February 18.
Source: ET NOW
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