Click to play videoHow does the Government respond to the comments and the criticisms of the Budget? That was the key issue that Karan Thapar explored on the post-Budget episode of Devil's Advocate with the Deputy Chairman of the Planning Commission, Dr Montek Singh Ahluwalia.
Karan Thapar: Dr Ahluwalia, here's a comment on the Budget from the Economic Times that says: 'Strong content, lousy presentation'.
Was this a poorly-drafted Budget which mysteriously ignored or failed to mention the important signals and messages which ironically were part not just of the documents tabled on the floor of the House, but also statements made by ministers and officials made on television thereafter.
Montek Singh: I think it is a point of view. How should a Budget be presented? Should a Budget say everything? I think that what the Finance Minister obviously did was to touch on the main points of the broad strategy.
He may have not talked about everything which is in the documents. But you know an analytically sharp reader should bring that out.
Karan Thapar: Let me give you a couple of examples why I think that the things left out were not a question of individual discussion, probably a lack of judgment. Let's start with the fiscal deficit.
The Finance Minister announced that the fiscal deficit is 6.8 per cent, at the states it becomes 10.8 per cent, at off-Budget markets and items, people say it comes perilously close to 13 per cent. This worried the stock market which tanked not only because of the size, but also because the Finance Minister failed to indicate a road-map for bringing the fiscal deficit down.
Now, yet, the Budget papers say that he plans to bring the fiscal deficit down by 1.5 per cent next year and by another 1.5 per cent in the year after. Now, if that had been a part of his Budget speech, the stock market might not have fallen so precipitously and despondency might not have set in. Was it not a mistake to leave it out?
Montek Singh: You know, I would not judge too much by what happened to the stock market in the course of the day. I mean, the stock market is very important but day-to-day, hour-by-hour variations in the stock market do not really signal a considered view on the Budget. And remember that in this period, the global stock markets have also fallen.
So the notion that what was happening to the stock market was only because of the way the Budget was presented is not actually correct.
Karan Thapar: Let me quote to you what you said to me in ‘evil's Advocate’exactly a month ago on June 7 when we spoke about the fiscal deficit.
You said you have a fiscal deficit of say seven per cent in the current year and that incidentally is what the fiscal deficit exactly is, objectively that is very high. But if you set it in a set of policies that lets people know that it is going to be five per cent and then four per cent and then three per cent, I don't think people will care too much.
I think the Finance Minister had the capacity to set it in precisely that context but he chose not to do so.
Montek Singh: No, no. That's not fair. The Budget documents clearly put numbers to the objective of bringing it down. The fact that he did not mention it in his Budget speech is a matter of choice in terms of presentation.
Karan Thapar: That's what I am saying, is it not a bad choice because the stock market fell 877 points and there was despondency in the industrial circles.
Montek Singh: I do not think that the stock market's movement was due to any sort conviction that because there was something in the documents and not there in the speech, it lacked credibility.
As far as industries are concerned, how they react to a Budget depends finally on what they are expecting to see. Very often they are focusing on particular incentives. I really wouldn't judge on the basis of the first day's reaction. We should take a cool look at the Budget and then see if it is a good Budget or not.
Karan Thapar: Let me then give you a second example of the same thing. This time, it is disinvestment. It was an important part of the President's address, it was an important part of the economic survey, but when it came to the Budget speech, beyond merely indicating something, the Finance Minister said absolutely nothing.
Once again the stock market took it badly, the industrialists took it badly. And yet, the funny thing is that hours later on television, the Finance Secretary revealed the names of two companies that are to be disinvested within six to eight weeks and at least six more companies that are in the pipeline for further disinvestment.
Now, if that had been revealed by the Finance Minister in the Parliament, once again the stock market would have been much steadier and despondency or disillusionment would not have set in.
Montek Singh: I don't actually believe. I am sure that the Finance Minister would also feel that is a statement as opposed to not being made on a particular forum would make a huge difference, he would have made it. But I do not believe.
Karan Thapar: You think that he should have made it?
Montek Singh: It is clear that if somebody feels that this is a substantive statement that they would like to see in the Budget speech, in the sense that if it was a part of policy, there is no harm in making it.
On the other hand, if it is there and brought out later on, he has amply clarified that. What I am saying is that the industrial reaction should be based on what is now being said looking at the speech and the reactions to the speech.
Karan Thapar: Once again, now let me quote to you what you said to me on this show on June 7 when we talked about disinvestment.
You said that the signal we should be giving is that are we willing to do a significant amount of disinvestment over a three-to four-year period.
It's important to determine and lay down a clear programme for the next three years. And then you added, that is what I hope would come out of our current deliberations.
Montek Singh: I still think that is true.
Karan Thapar: But it has not come out and the Finance Minister has hidden it if it has come out.
Montek Singh: Now hang on, hang on. The Budget speech is made under a very tight time deadline. It's been a very short time since the Government took over. I hope we have that.
Now, whether we have it now or have it a month later, whether it is said in the Budget speech makes such a big difference, especially since the Finance Ministry has clarified. I'll give you one reason.
Karan Thapar: Saying it in the Budget speech is important because Budgets in India, rightly or wrongly are taken as several moments when the Government announces policy. To ignore that the Budget is seen in that way and act differently is to ask for trouble.
Montek Singh: Not necessarily. I can think of one reason why the Finance Minister may have held back.
Karan Thapar: Was it time?
Montek Singh: No, simply because he preferred to first take Cabinet approval.
Karan Thapar: And then why does the Finance Secretary go public three hours later in the TV studios?
Montek Singh: Oh, because this is up and we are going to take Cabinet approval. There is a difference
Karan Thapar: Could the Finance Minister have not said this, that we have companies in mind, we are going to get Cabinet approval and that we are announcing it at an opportune moment ?
Montek Singh: That becomes a fine point in terms of detail. Now look, a Budget speech can be written in many different ways. You can always say what about adding this sentence, what about saying it differently. Now that the speech is over and intention has been clarified, now what is our concern?
Our concern is that countries looking at India, investors, analysts should be making up their minds, what does the Government intend to do? And The Finance Minister has clarified that amply.
Karan Thapar: Oh has he? Because you see, the Finance Secretary three hours after speech named two companies that would be disinvested within six to eight weeks and six more that were in the pipeline.
An hour later when I interviewed the Finance Minister for this very channel, I asked him specifically, do you have any particular companies in mind that you intend to consider for disinvestment? He categorically said, no. So even on that, he and the Finance Secretary said different things.
Montek Singh: This is precisely why he may not have made the statement in the Parliament. I can see that when a Finance Secretary is working on a plan and he says that I am working on a plan, the Minister says that until the Cabinet has approved of it, I do not want to make a comment on it.
Karan Thapar: Let me give you a third example. This time it has got to do with the enormous borrowing requirement of four lakh crore that the Finance Minister announced in his Budget.
People were frightened by the amount and particularly because they feared that this would kick up interest rates and squeeze up the private sector. As a result, perhaps the country's most credible business paper, ‘Business Standard’, had an editorial the next day that questioned: is this a counter productive stimulus and it expressed its fears that the private sector was being squeezed out.
And yet, what happens 24 hours later? The Finance Secretary announces that the Government will ask the RBI to undertake open market operations, buy up bonds worth 50 per cent of the Government's requirement, thus infusing liquidity into the system and easing the pressure on interest rates and easing the pressure on the private sector.
Now, if that message had been given 24 hours earlier, he wouldn't have been criticised by the ‘Business Standard’ and he wouldn't have evoked fear and concern in the industrial circles.
Montek Singh: I don't agree with that Karan. The ‘Business Standard’, like any other good paper, feels that it has a God-given right to criticise. And I do not believe that adding sentences here and there is going to change the fact. Let's be clear. Let's come back to the substance.
The fiscal deficit issue is a very important one. I am one of the people in the Planning Commission who have been arguing that we need that extra stimulus. I am actually grateful that the Finance Minister weighed the issue.
All these issues were vague. People raised a point that why risk a higher fiscal deficit. We have argued strongly that we need that expenditure stimulus because the global economical situation is very difficult. Now, I am not sure if the ‘Business Standard’ view is that it would have been better not to have this stimulus.
Karan Thapar: No, the ‘Business Standard's’ view is that you have got to make clear how you are going to get your borrowing without affecting the private sector. The Finance Secretary had the answer but the Finance Minister hid it.
Montek Singh: No, no, no. Let's be very clear about it. There is no likelihood by the way that the off Budget items this year will be anything like what they were last year. If all prices collapse, the deficit will be much better, if they shoot up it will be worse - unless we raise prices.
If you are tolerating a 6.8 per cent of GDP fiscal deficit, I don't think the Finance Minister needs to work out how they are going to do the borrowing.
Quite frankly whatever they are going to do, it is going to be a certain drawing of resources and a basic logic of 6.8 per cent is that the private sector in this year, is not going to be doing that much otherwise there is no case for it.
Karan Thapar: Let me sum up this part of the discussion by putting it like this. At least on three critical issues--the size of the deficit and how it's to be handled, the question of disinvestment and the question of borrowing--the Finance Minister had answers that would have allayed concerns, that would have stopped the stock markets from diving and that would have stopped disillusion from setting in, but he didn't reveal them.
I put it to you that in the middle of perhaps the worst economic crisis that the country has ever faced in the last 60 years, to hold back information that would reassure and therefore let some sense of disillusionment or even panic spread is a bad judgment call.
Montek Singh: I wouldn't want to debate differences and what the Finance Secretary said and all that. You can always argue that you could do it a little bit differently but what I think is that we should not make the Budget speech like the economic constitution for the whole year.
Intelligent people know that the Finance Minister has a time constraint and he is going to say some things and many of these things have been said before. I myself have been arguing that don't worry about a high fiscal deficit. If you have a supportive monetary policy, it is ok.
Karan Thapar: Can I interrupt? He (Pranab Mukherjee) really didn't have a constraint on time. He spoke for virtually two hours and he could have gone on five or ten minutes more if he wanted to. The fact is that the Budget is considered a seminal occasion.
Now, in the middle of this downturn to try and change the way people think of the Budget is a wrong step to take. It is better to flow with the grain rather than use this moment to change the way people think.
Montek Singh: It seems as if you would have been happier if certain things which were in the document were actually put into the speech. The way I look at it is that any worthwhile system of analysis should say forget about how it's presented, but what is it that the Budget actually says. All these things are there.
Karan Thapar: Let's come to another criticism of the Budget that it was just an accounting exercise, that it was simply a statement of the Government's expenditure and revenue.
It had no vision for the future and no inspiration to raise sentiment and worst of all it overlooked the fact that that's precisely what the markets were looking for.
Montek Singh: Oh I don't believe that at all. The Budget essentially repeated - if you like - things that were already said in the President's address. We are facing a global slowdown, it is top priority to get our growth rate back, we want the growth to be inclusive, our expenditure is oriented towards inclusiveness, we are trying to maintain a stimulus in the economy. Yes the fiscal deficit is high but as the Budget document shows, we will bring it down. That's the message.
Karan Thapar: But one very important message which was a critical part of the President's address, which was a very important part of the Economic Survey was completely left out of the Budget Speech altogether--the promise to raise insurance caps and given that that's a promise made five years ago and has not been fulfilled and in the eyes of many people--both in India and abroad - had become a credibility test.
The Finance Minister's sudden silence on this actually panicked people. It made them feel, 'is he backing off? Is he trying to find a way around it?'
Montek Singh: I don't think that's a very fair statement. That particular proposal is in Parliament. Well if you wanted him to say it again, he could have said it again.
Karan Thapar: By not saying it, he made people wonder and question whether he was backing off.
Montek Singh: Let's be very clear that we did not have change in insurance caps for the last five years but we had a growth of nine per cent. His big task is how to get that growth back. I don't believe by the way - I really don't believe - that changing that cap is crucial to recovering the momentum. It is crucial for longer term development.
Karan Thapar: Precisely. It's the most important thing. It is crucial to inspiration and what market sentiment wanted to hear.
Montek Singh: Let me put it this way. Suppose Parliament were to pass that law tomorrow, but we were to implement our schemes poorly and the stimulus is not properly implemented, I think we would be much worse off by concentrating on this than by doing this a little late.
Karan Thapar: But you could have done both. When I interviewed you on June 7, this year, we spoke about the need to use the moment to deregulate oil prices. This is what you said to me - 'there is no question that price reform is important. It's a significant part of the agenda'. And then you added, 'Anything else quite frankly is not economically sustainable. This could be a good time to bring about that rationalisation'.
But what did the Finance Minister do? He appointed yet another committee--the fourth one overall and the third one in a year. And the message from that is that he is either prevaricating or he is sweeping it under the carpet.
Montek Singh: This is not a Finance Ministry issue at all.
Karan Thapar: Then why talk about it in the Budget?
Montek Singh: Let me make one more point. Since we spoke, the Government has in fact raised oil prices. Now I agree that it has not linked them explicitly, so it's not so much a reform as a price adjustment and a very important price adjustment.
It is because of that price adjustment and the willing to make that price adjustment that the Government has gained a certain amount of credibility.
Karan Thapar: But then it's even more easier for the Finance Minister to say that now we will move on to reform beyond price adjustment.
Montek Singh: He has just taken it out of the realm of the Ministry of Petroleum and made a Government statement that we are setting up a committee.
Karan Thapar: Yes but when you set up committees in India, that's an excuse for not doing anything, a way of inaction.
Montek Singh: No, no that depends on how long the committee takes. Let me put it this way that I would hope that we can take action on this, I hope this committee gets appointed very quickly and acts accordingly.
Karan Thapar: Let me put it this way. If you look at the things that the Finance Minister chose to mention vis-a-vis those that he deliberately ignored, questions come to mind.
For instance, why is it possible for him in his Budget speech to talk about a slum-free India, a national literacy mission for women, food security bill, keep banks and insurance companies in the Government's hands, but not possible for him to talk about things like FDI and insurance, opening up coal and nuclear power which the Government was committed to do or even financial reforms.
Why is one set of messages possible and not the other?
Montek Singh: Well I think you should get clarity on this from the ministry itself. I am not aware that what is being planned on this is not going to happen. What you are really saying is that you would have liked to hear a sentence on it in the Budget speech.
Karan Thapar: And in fact the country and analysts would have because by not hearing those sentences he is actually giving the message that this Government is low-key on reforms and that this is not a priority item.
Montek Singh: No. I think enough statements have been made by the Prime Minister and the Finance Minister and in clarifications after the Budget, he has responded to many of these points.
Karan Thapar: After the Budget he has to respond because there was a sense of concern in the Finance Ministry. But did you read the headlines in the international papers a day after the Budget was presented? ‘A Budget for a second tier developing nation’--The Wall Street Journal. ‘Indian Budget disappoints investors’ - The Financial Times. And closer home they were ‘Common Minimum Pranab’- The Indian Express and even ‘Pranab Sells a Sob Story’.
Is that the message that the Government wanted to send out?
Montek Singh: I think managing the headlines one day after the Budget is a PR job and I am sure that the Finance Ministry and the press people are handling that.
Karan Thapar: And it didn't make it easier that he cut out crucial things from his Budget speech.
Montek Singh: No I think you should look at the Government's total message and the Budget's total message. The Finance Minister has said at different times that the Economic Survey is after all approved by him. The Survey indicates a broad direction and a broad range of reforms which will get done in a due course of time.
We have never taken the view that we will lay down what we are going to do in the next five or ten days or in the next month. What we have said it that this is a broad direction that we are going to follow. That's the key thing.
Karan Thapar: Let's hope people are listening to you and let's hope that it is your words that they take to heart rather than the missing words from that of the Finance Minister's speech. A pleasure talking to you.
Montek Singh: Nice talking to you.
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