I can't rule out pressure on prices: Pranab

Karan Thapar: Hello and welcome to a special two-part interview with Union Finance Minister Pranab Mukherjee to mark the first anniversary of the UPA-II government. On Sunday, I shall speak to him as the leader of the Lok Sabha about the political challenges facing the government but first as the Finance Minister - the economy. Mr Mukherjee let's start with the performance of the economy. After the downturn in 2008 - 2009, the economy is probably going to grow just above 7.2 per cent this year, perhaps it will hit 8.5 per cent next year, are you surprised by the incredible resilience and strength in such a short span of 18 months?

Pranab Mukherjee: I must compliment the entrepreneurs, workers, professional managers with whose cooperation it has been possible to achieve the target which you are talking of. Most probably, we will achieve the target of 8.5 per cent GDP growth in 2010-11.

Karan Thapar: Let me then ask you at this moment when growth seems to be returning and accelerating, do we have self-sustaining growth or do you still have sectors where you need to encourage growth with government stimulus?

Pranab Mukherjee: Of course in agriculture. Now the growth contributions are from manufacturing sector in which industrial production has reached 10 percentage points plus, service sectors are contributing substantially.

Karan Thapar: But agriculture remains a problem.

Pranab Mukherjee: But agriculture remains a concern, and we shall have to ensure that we achieve minimum 4 per cent growth in agriculture annually over a longer period of time so that we can maintain sustainable growth at a higher rate around 9 per cent.

Karan Thapar: The reason I mention the growth phenomenal that we have seen in the last 18 months is because the CNN-IBN poll establishes that 60 per cent of the country believe that your response both to the downturn and need to then build up growth has been and I am quoting "effective, speedy and purposeful". Do you interpret that as a vote of confidence in your economic policy?

Pranab Mukherjee: Of course. And it is not my policy alone, the response of various stakeholders made particularly by the industry sector, service sectors. I will give you just one example. I had a sliding down in the growth scenario of agriculture, particularly when the adverse impact of drought was felt all over the country, the way the Punjab and Haryana government responded to protect the standing crop and the extraordinary measures they took which reduced the adverse impacts to a considerable extent. As a result, the net loss of the Kharif season in terms of loss in grain, it was around 15 million tons but earlier apprehension was it would be much more. Therefore various sectors, they responded to the policy initiatives which government in conjunction with Reserve Bank of India (RBI) took -- both fiscal policy and monetary policy.

Karan Thapar: So you are sharing the credit that you get from the CNN poll with the stakeholders like the Punjab and Haryana government and in fact with the…

Pranab Mukherjee: And the entire manufacturing of service sector.

Karan Thapar: Let's then come to the challenges that lie ahead. The first challenge is the fiscal deficit. How confident are you after the bonanza that is just come in with the 3G spectrum auction that you can achieve the target you set of 5.5 per cent for this year?

Pranab Mukherjee: Additional amount which we have received from 3G sector, it will provide little elbow room for us but what I feel that coming back to the path of fiscal consolidation is absolutely imperative. We cannot afford to indulge in financial profligacy over a longer period of time.

Karan Thapar: I am delighted to hear you say that its absolutely imperative because one of the concerns that lingers from your budget is have you budgeted enough as the subsidy you have to give all marketing companies. Your budget only has an allocation of some Rs 3,100 crore and analysts say that if you assume an average price per barrel over the year of 80 dollars then you perhaps need to budget something like Rs 95 -98, 000 crore which means even after you take into account the bonanza of Rs 35,000 crore from 3G spectrum, you still have a shortfall of Rs 60,000.

Pranab Mukherjee: As far as the oil pricing policy is concerned, we shall have to address it and that's why the Kirit Parikh committee's recommendations are there and Prime Minister has constituted a group of ministers (GoM), with me as the chairperson, and we shall have to address this problem. Your question is that I have not taken note of what would be the requirement to meet the oil subsidy bill.

Karan Thapar: Absolutely.

Pranab Mukherjee: That is your concern but to my mind we shall have to address this problem and what decision group of ministers will take I can not forecast it and can not make any premature declaration but we shall have to address this problem that the system does not have the capacity to bear the level of expenditure level of subsidies which are likely to emerge. Therefore, some realistic assessment will have to be made which can be borne by the system.

Karan Thapar: Two three quick questions, people will be very reassured to hear you explain this in so much detail and put the emphasis that a realistic adjustment has to be made. Is this an urgent priority for you?

Pranab Mukherjee: As far as the fiscal consolidation is concerned, it is one of the top most priority for me along with maintaining the level of growth, both things have to be addressed simultaneously. I would not like to have growth at the expense of fiscal prudence, at the same time, I would not like to strangulate the growth process by resorting to extremely monetarist policy.

Karan Thapar: In which case let me put it like this. Will you be disappointed if, when you present your Budget in February you aren't able to achieve 5.5 per cent.

Pranab Mukherjee: I am quite confident that I'll be able to achieve 5.5 per cent.

Karan Thapar: People say that to achieve 5.5 per cent, you may have to rely much more on disinvestment than just the targeted Rs 40,000 crore that you announced in your Budget. Now in November the government did announce a very ambitious disinvestment policy, do you believe it can bring in substantially more than you budgeted?

Pranab Mukherjee: No, I am not thinking of more than that. I will be happy if I can have that. What I am expecting that if monsoon is favourable, return from agriculture sector would be much more, it will have its moderating influence in the price also and the revenue buoyancy which was not visible in the earlier months of the current year and previous year, it may pick up and there may be a revenue buoyancy.

Karan Thapar: But the problem which will have struck people as they hear you speak is that you are relying upon agriculture and the monsoon. God forbid, you should have a second bad monsoon failure, then what?

Pranab Mukherjee: Look, if everything goes wrong you cannot expect that you will be right in certain areas. Therefore, we shall have to keep in mind that I knew what would be the impact of the situations and where we fix the road map for the fiscal consolidation as per the road map laid down by the thirteenth finance commission, there I had to depend on certain assumptions. Assumption is that the situation will be normal, if the assumption is that the situation will be totally abnormal, another financial crisis will come, you cannot assume that another financial crisis comes; European… present Greek problem spreads all over the world, then you cannot expect that your normal calculations will be up to the mark. Therefore, let us start at situation remaining normal, monsoon being normal. There is no extraordinary, unforeseen situation affecting the economy adversely, then it would be possible to maintain the projections which I have laid down in my Budget.

Karan Thapar: Alright, people will understand that clearly that we don't actually then have a contingency plan in mind for the failure of the monsoon. Let's come to the second big challenge that we face.

Pranab Mukherjee: No, I don't agree with you that I have no contingency plan.

Karan Thapar: You do?

Pranab Mukherjee: Yes I do have, but contingency plan does not mean that you will work out that there will be a failure of monsoon. If monsoon fails to this extent, this will be there - that will be there. As when it happens, government quickly responds, as we did it last time in Haryana and Punjab.

Karan Thapar: Let's then come to the second big challenge that you faced, which is the challenge of inflation. Inflation as you know is at 9.59 per cent, food inflation has come in at 16.49 per cent and the common consensus in the country - you must have heard this a thousand times - is that this is the biggest failing of the Finance Ministry and the biggest failing of the government. How do you respond to that?

Pranab Mukherjee: No, there is no doubt that inflation is a matter of concern but in a growing economy, I cannot totally rule out that there will be no pressure on prices.

Karan Thapar: But 9.59 per cent.

Pranab Mukherjee: Question is till what extent, therefore the double digit inflation is not accepted, particularly the high inflation on food items, but you shall have to analyse why it has happened. It has happened on two counts mainly. First, there was the supply constraint, 3-4 major food items which have contributed substantially to the basket of the food inflation - pulses, edible oils, cereals, sugar -- cereals were not in short supply but edible oil, pulses and sugar were in short supply.

Karan Thapar: And outside your control.

Pranab Mukherjee: International commodity prices also in these items were reasonably high till the Brazilian picture about sugar was little better and it came very late and it has started impacting, and in these 3 items (edible oil, pulses and sugar) the prices have started showing the trend of lowering from January to the figure of last week of April and first week of May, there has been some moderation.

Karan Thapar: Very liitle..you must concede that.

Pranab Mukherjee: Of course, if you talk of out of 19-20 per cent, 2-3 per cent, to you it may appear very small. But I do not expect that from 20 per cent it may come down to 10 per cent. It is not possible.

Karan Thapar: Can I put something to you...people point to the fact that this has happened at a point when India has record buffer stocks of wheat and rice and the criticism is that why did not the government of India use these buffer stocks more effective: (a) to combat prices, (b) to reach the needy. Can you accept that in fact handling stocks and making them available, the government could have acted with greater alacrity?

Pranab Mukherjee: Buffer stocks at what cost? What is the price at which I had to build up with buffer stocks. Paddy prices I have increased Rs 500 per quintal in a period of 5 years. Please listen...don't rush, these things you cannot just simply score a debating point. I want my viewers and the audience to understand and appreciate this point. In 6 years period, I have increased the prices -- minimum support price, procurement price of Paddy by Rs 500.

Karan Thapar: I accept that.

Pranab Mukherjee: Wheat by Rs 600. Today, the floor price, particularly the wheat and rice, we procure about 34 per cent which is one third of the total production which sets the benchmark. Therefore, this is the ground reality.

Karan Thapar: Sir, please can I interrupt.

Pranab Mukherjee: Please listen to me. If I am to release the buffer stock at subsidised prices, it will increase the subsidy. If I release the buffer stock at the procurement price plus transport charge, on which we are doing it, there is no taker.

Karan Thapar: Sir, please can I ask a simple question?

Pranab Mukherjee: Please listen, there is no taker, because these we cannot simply go and dump in the market, then it will be cornered by those who have money. These ought to be distributed through the public distribution system. That's why in the chief ministers' conference, it was emphasised that unless we improve the distribution channel, even the buffer stocks if we release substantially, which we have done in the recent week, and states have started picking up but unless the distribution is improved and put in place effectively, merely by releasing from the buffer stocks is not going to help you.

Karan Thapar: You are creating a dilemma for yourself. Why do you create a buffer stock if you don't use it when you need it, and if the cost of using it deters you from creating it. Then why in fact created in the first place? If you have a buffer stock use it when you need it.

Pranab Mukherjee: Who is going to feed India -- 120 crore people, when there will be a shortage?

Karan Thapar: But there was a shortage?

Pranab Mukherjee: There was no shortage, my dear sir. There were high prices but there were no shortage and buffer stock, unless you release at subsidised rates, you cannot reduce the price. This is the point you are missing.

Karan Thapar:Then why have a buffer stock?

Pranab Mukherjee: Buffer stock is to ensure security for future.

Karan Thapar: What about the present, when prices are high and people needed and are suffering from not having enough food because they cannot afford it?

Pranab Mukherjee: Why don't you have the courage to state straightway to your viewers and audience to listen that you (government) release the buffer stocks at subsidised prices. Why don't you say that?

Karan Thapar: I am saying that.

Pranab Mukherjee: No you don't say that, if you have that courage then say that you want the finance minister and agriculture minister to release the buffer stock at much lower prices than they (government) procured and incur huge subsidy, then the first question which you raised to me that you have taken a very low amount for these likely subsidies on oil and we will have to add another Rs 100 crore or Rs 50 crore or Rs 60, 000 crore on food subsidy.

Karan Thapar: There is a solution. Charge the right price for oil, let the middle class pay for oil, let the poor get subsidised grains. Spend the subsidy where it's needed.

Pranab Mukherjee: Your questions must not be contradictory from one another.

Karan Thapar: They are not contradictory, what I am saying is.

Pranab Mukherjee: I am afraid. As I understood, it is contradictory

Karan Thapar: Why do you need to subsidise the middle class who use petrol and diesel, subsidise instead the poor who aren't getting grains. Use the subsidy effectively.

Pranab Mukherjee: You are not fully aware or you desire to forget it. We are providing subsidised rice to the poorest of the poor families-Antodaya Yojna families at Rs 3 per kilogram, wheat at Rs 2 per kg. We are providing subsidised rice even to APL families at Rs 10 per kg at 8.68 paisa. We are providing subsidised rice and wheat to the entire BPL families of 4.2 crores at the rate of Rs 6 to 8. But these are to be distributed through PDS - (Public distribution system) and if the public distribution system is not in place, you cannot raise the accusing finger to the union finance minister or to the agriculture minister. Please don't provoke me, these issues have been discussed umpteenth number of times in Parliament and if Mr Karan Thapar wants me to believe he does not know this thing, it is simply to score a debating point. If you want to inform your audience in a proper perspective, again I am requesting you don't try to score a debatable point. These issues have been discussed at least half a dozen times. We explained our position, it is not possible for the union government to maintain the PD system in 6 lakh villages and few thousand towns.

Karan Thapar: In which case, my last question on this subject, along side enormous praise for you as the best and most effective minister. The CNN-IBN poll also says that 63 per cent think that the biggest failing was the inappropriate, inadequate and perhaps the insensitive response to the price situation. How do you view that finding?

Pranab Mukherjee: I will say that yes we have not been able to contain the price which we could have done. But there are reasons, if a knowledgeable and informed person wants to ignore the reasons and try to project the other side, there I have my concern.

Karan Thapar: Then at that point when you are smiling once again, I am going to end this particular interview. On Sunday I want to talk to you - not as the Finance Minister, but as the leader of the Lok Sabha - about the political challenges facing the government. That's Sunday on CNN-IBN at 2 pm and again 8:30 pm.

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