I took calculated risks for higher growth: FM

Finance Minister Pranab Mukherjee presented the first budget of the second United Progressive Alliance (UPA) Government on Monday July 6, 2009. The FM promised to continue to push the UPA's agenda of "inclusive growth and equitable development" while meeting the "rising expectations of a young India". Here, in an exclusive interview to CNN-IBN, the Finance Minister speaks to Karan Thapar about why he shaped the budget the way he did.

Karan Thapar: Earlier on Monday, you presented the first Budget of the second UPA Government. Mr Mukherjee, you announced that the fiscal deficit would be 6.8 per cent which is sizably more than the 5.5 per cent that you announced at the time of the Interim Budget. Even if we estimated 6.4 per cent, even if one took into account your excise duty and service tax cuts, isn't 6.8 per cent worrying?

Pranab Mukherjee: Of course, it is worrisome. But I had to take the calculated risk because I wanted to have the higher growth. Domestic demands depend on growth. Therefore I had to inject substantial quantum of money into the system. You have noticed that keeping in view that my revenues have gone down from the presentation of Interim Budget to date, about 26,000 crores of rupees, expenditure has increased another 23,000 rupees. But despite that I have given 61,000 crore rupees. I have given 40,000 crores to the core Central plan and 21,000 I am giving by enhancing the borrowing power of the states to the economy, so that the planned development can get additional 61,000 crore between the Interim Budget and this Budget.

Karan Thapar: That I fully understand and appreciate. But in fact because you have enhanced the capacity of the states to borrow, the total fiscal deficit of goes to 10.8 per cent. Experts say that if you add to that off-budget items, then the full fiscal deficit goes perilously up to 12.5, maybe even touching 13 per cent.

Pranab Mukherjee: That is why I say it is worrisome, but I had to take that calculated risk to see that we come back to the higher growth path. The fiscal stimulus that we provided to the strength of 1,86,000 crores, that has helped to rest our GDP growth at 6.7 per cent for the year 2008-09, which was projected at some time to go to below 5 per cent. Therefore I am hoping that with this it will be possible for us to have 7 per cent growth. But I do agree that this level of borrowing and this level of fiscal deficit cannot be sustained for a longer period. Sooner than later, we shall have to come back to the fiscal prudence.

Karan Thapar: Do you not think that the Budget itself could have indicated a road map for bringing it down and bringing yourself under the discipline of the FRBMA Act? That would have given people much better assurance that you are in control of the deficit. At the moment, they are a bit scared whether you can control it or not.

Pranab Mukherjee: No, that was not possible during this Budget because the choice was, which route will I take! I had to chose whether I will continue to provide stimulus or not. Therefore, keeping in view that there is no sign of revival of the economy in North America and Europe, and some of the giants in Asia, up to now, no visible sign is available, I had to depend mainly on the domestic sectors. In keeping that in view, I only did what I think is right. It was that the social sector I shall have to step up. My approach of injecting more money into the system, particularly for developmental expenditure, from 2,43,000 crore to step it up to 3,25,000 crore, is a quantum jump but we had to do it. But I had to do it to come back to the higher growth projection.

Karan Thapar: But I gather that in the document that you tabled along with the Budget on the Floor of the House does sketch up, even if very vaguely, a route map of bringing down the fiscal deficit. I heard your Finance Secretary on television today explaining that the hope is to bring it down by 1.5 per cent this year and another 1.5 per cent the next.

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Pranab Mukherjee: So four per cent would be in 2011-12. And 5.5 will be in 2010-11.

Karan Thapar: But instead of giving that message in the document that you read out on the Floor of the House, which is again not public, but your Finance Secretary has revealed it, could you not have put that message into the Budget? It would have given greater assurance and perhaps the tanking of the stock market would not have happened.

Pranab Mukherjee: I do not know whether it could have been included in that statement or speech but it is very much a Budget document, Karan, because this is a legal obligation of the Finance Minister to introduce the Finance Bill and also issue these three statements on the Floor of the House. I did exactly the same. I did it as a second item, after I commenced the Budget for the acceptance of the House.

Karan Thapar: Just for priorities, so that the audience understands, although the fiscal deficit that you have presented in the Budget for this year is 6.8 per cent, your intention, your intention as per the document that you were talking about is to bring it down by 1.5 per cent next year and another 1.5 per cent the year after. So, in two years' time, you hope to bring it down to 4 per cent. What is the year, are we talking about 2010-11 or 2011-12?

Pranab Mukherjee: No, this year I am hoping to continue the same because seven months are left. From the presentation of today's Budget and the presentation of the next Budget, fiscal year's three months are already gone. April, May and June are over. Nine months are left. Budget will be presented a little earlier. From 2010-11, I think this correction will be possible to do. We hope that this year we maintain the GDP growth at 7 per cent.

Karan Thapar: So, from 2012, it will have come down to 3.5 per cent to 4 per cent?

Pranab Mukherjee:No, no.

Karan Thapar: Okay, 4 per cent?

Pranab Mukherjee: Yes, 4 per cent.

Karan Thapar: Are you worried that in the interim, the credit agencies might start to down grade India or are you confident that won't happen?

Pranab Mukherjee: No, no. It may happen but we have to work out in collaboration with all stake holders and ensure that the private sectors are not elbowed out. Because the concept which has been essayed and perhaps which got effected into the downward trend of the Sensex, I can assure the private sector that they will not be elbowed out.

Karan Thapar: One of the reasons why the financial sector, the private sector is worried about being elbowed out is because of the enormous borrowing requirement. It is almost 4,00,000 crore, which is the difference between the last Budget and this Budget. People say that this is entirely government borrowing. There is no tax coming in because your Budget is tax neutral. Are you bothered that this will kick up interest rates and as a result will breathe or retard, both in terms of investments as well as recovery.

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Pranab Mukherjee: I do hope that there will be some investments, government state-led investment because the money that has been injected in the planning is basically for investment in rural and urban infrastructure, social sectors. So, investments will be there. Demand will be generated in the private sector which will be again investment. Question is about availability of resources for that. We are working together in collaboration with the private sector so that they are not elbowed out, and some mechanism is worked out.

Karan Thapar: You had created much more room for the private sector and you would be able to control the push-up of interest much better if you had a more ambitious disinvestment programme. Now, the President's address was about disinvestment, the Economic Survey put up a target as high as 25,000 a year. But you have pegged your target at a fraction of that at 1100?

Pranab Mukherjee: No, no. That I did not spell out. That is nominal. But what I have done is read out the philosophy and we shall have to take all our stake holders together and see what best we can do. I cannot simply in my Budget speech say that we will disinvest from such and such a company or a public sector undertaking and create controversy, it is not possible. I would not like to follow the disinvestment programme that was followed in the earlier regime.

Karan Thapar: Do you have in your mind, even if you have not read it out in the House, a list of public sector undertakings that you would consider for disinvestment>

Pranab Mukherjee: No, I will work that out in consultation with the stake holders. I have nothing in my mind that I can share.

Karan Thapar: Do you know why people are worried when you say that you will work it out, though they know you will is that members like alliance like the DMK have publicly said it that they are against it. Now, that the Budget is not mentioning it at all, people feel you are backing off. That is another reason that the stock market fell so sharply.

Pranab Mukherjee: I do not know why the stock market fell so sharply. I stated in my Budget statement about my philosophy about disinvestment, but it is purely a Cabinet document. We have to carry the people with us and we will do that.

Karan Thapar: The reason people worry is that in trying to carry people with you, one of the compromises that you may want to do is you might back off from it and because of that the fiscal deficit will be in danger and the interest rates will go up. You will be unable to finance the investments that you want to put into the infrastructure.

Pranab Mukherjee: No, no. That is not the desired objective. You should have faith in the government.

Karan Thapar: If I may repeat what you said, the objective is very clear, we will have to do this.

Pranab Mukherjee: Whatever is necessary for a healthy growth, whatever is essential to remove the distortions in the economy, will be done.

Karan Thapar: Does that include disinvestment, Mr Finance Minister?

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Pranab Mukherjee: I am not going into specifics, Karan. Whatever I have stated in the Budget statement, I have indicated the broad guidelines and the parameters. I would not like to specifically indicate which sector and how much.

Karan Thapar: There is a smile on your lips and it gives me a thought. If I do not provoke you, you can commit yourself with disinvestment. But if I provoke you, then you become conscious of the fact that this is a problematic political issue and you do not want to be committed. Is this one of those issues?

Pranab Mukherjee: It is no doubt a problematic area. But at the same time what is needed for the health of the economy will be done.

Karan Thapar: Another problematic area, where people heard your Budget speech but came away disappointed is that you said nothing about raising insurance cuts or raising FTI cuts. This is a subject that the President's address spoke about, the Economic Survey spoke about and in 2004 as you know the then Finance Minister Mr Chidambaram too made a promise to raise insurance cuts, a promise the government could not deliver. So do you think that this is a credibility test for the government?

Pranab Mukherjee: You have to keep in mind that the situation under which I presented the Budget is not a very easy situation and it is a bit difficult. So far as the Economic Survey is concerned, it is a very credible document, it is a very credible document and to maintain the credibility, because though it is prepared under the Finance Minister, the experts are free to give the candid view so that the credibility of the economic document is not challenged. But when I formulate on it, I shall have to keep in mind various certain other things, what could be done. So there is always a difference between the desirability and the achievability. So, it has exactly happened like that.

Karan Thapar: So, since you could so beautifully analyse yourself between the 'should' and the 'could', let me ask you a blunt question. How much short are you of what should be done?

Pranab Mukherjee: In course, of time it will be revealed how much we could make-up.

Karan Thapar: So, you are gambling entirely, aren't you? On the impetus you are giving the economy, working quickly to give you that headroom to be actually more ambitious?

Pranab Mukherjee: No, I am not gambling. I am taking calculated risks to achieve demand driven goals. By injecting money in the system and the planned social sector, development of urban and rural infrastructure, and certain other sectors like agriculture and rural development, which will generate the resources and generate the income of the people. Once we come back to the growth path, others will follow. Please remember that whatever has been achieved in the last five years, the key to that has been 8.6 per cent average growth rate, 9 per cent growth rate which has led to your GDP growth rate substantially.

This has provided the government sufficient elbow room to come to this section.

Karan Thapar: As I hear you speak, I remember virtually your opening words when you presented the budget. This morning you said that your first aim was to bring the economy back to the nine per cent growth rate. No doubt that you have given a sizeable impetus in terms of the money that will actually go into the economy, in terms of reforms signals, that would be important messages to investors in India and abroad, reform signals in terms of disinvestment, the FDI Caps or some signals to bring the fiscal deficit in control. Where you shied away and people will ask themselves the questions, has he done enough in terms of encouraging investment growth, in terms of signals that he should be giving?

Pranab Mukherjee: I have given adequate signals, but at the same time I will have to be careful that I do not give any wrong signal at the wrong point of time. What is needed right now when the international situation is not at all favourable, European as well as North American economy is not on the revival path, I shall have to concentrate more on the domestic front and that is exactly what I have done.

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Karan Thapar: Absolutely! I am not saying that you should have done anything differently in the impetus that you have given. But in terms of reform signals, certain things like fiscal deficit, insurance caps, you could have done more.

Pranab Mukherjee: Exactly, I have said reforms itself is a process and not an event in itself. Whatever you have done 1991 onwards, whatever the subsequent governments did, it is a continuous process and as time goes by it unfolds itself. And it will unfold. You cannot expect us to include everything in a single Budget speech. Budget document is no doubt an important document, but not the only document that will take care of the issue. We have given adequate signals and in course of time we will continue to do so.

Karan Thapar: Except for the fact that you looked at this Budget as the accounting statement of this government, rather than a policy or an opportunity to reinvigorate the economy.

Pranab Mukherjee: I do not buy that because people generalise a lot. I have been hearing this from the eighties and almost every Finance Minister has been hearing that it is an accountant's Budget. Those phrases are readily available but I have done what economy needs, deserves and what is just.

Karan Thapar: This may be an unkind comment but since you are a generous person, I will put it to you. What about the comment that some people say that Pranab Mukherjee is caught in the mood and atmosphere of the eighties, and he has not transformed into a person of the twenty first century where one requires a Finance Minister to be more imaginative, more ambitious and that he has been technically correct but he has not been inspirational?

Pranab Mukherjee: That is an individual value assessment, I have no comment on it.

Karan Thapar: Let me talk about some of the positive aspects of the budgets. I deliberately emphasised the negative aspects first so you have a chance to answer them. On the positive side there is praise for the fact that despite the uncertainty, you committed the government to introducing the GST. But people ask, has the government done sufficient preparatory work? Have you been able to sort out the differences between the Centre and the states?

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Pranab Mukherjee: So far as the assessment of the empowered committee of the Finance Minister, they have assured me and I had a meeting with the state's finance Ministers for the first time and there we discussed the issue. There has been substantial convergence; there fore I am hoping with the corroboration of the empowered committee and with the state governments that it would be possible to do so. If the states agree, I do not find any difficulty in getting the constitutional amendment and to put in place, the necessary legal framework.

Karan Thapar: If I heard you correctly, you said you are hoping. Are you not confident enough that it will happen by the first of April?

Pranab Mukherjee: I am confident that is why I have assured. The empowered committees of the states have assured me on behalf of the states.

Karan Thapar: Let's now come briefly to the area of inclusive development as you have assured in your Budget yourself. You have allocated an additional 39,000 for the NREGA programme, which you said is a 144 per cent increase. Actually that is only a 144 per cent interest if you go BE to BE. If you go RE to BE, it's a lot less.

Pranab Mukherjee: You must make comparison between BE to BE, not RE to BE.

Karan Thapar: Except that your actual expenditure was much more than BE, so the actual increase is much less.

Pranab Mukherjee: No, actual increase takes place in course of time.

Karan Thapar: What about the commitment in your manifesto that you had made a promise to make the NREGA applicable nationwide, urban India as well.

Pranab Mukherjee: We have a list where all the districts are covered. That is National Rural Employment Guarantee Scheme. The word is rural.

Karan Thapar: Commitment in your manifesto was to make it urban as well.

Pranab Mukherjee: We can have similar schemes, but here the word is rural.

Karan Thapar: I understand that but extending that?

Pranab Mukherjee: What we have promised in the manifesto, I have already implemented. I have already stepped up the wages to 100 rupees from what was 60 rupees before.

Karan Thapar: So, this scheme is not going to apply to urban India. Do you have a scheme that will apply to urban India? At the moment, I do not think you do.

Pranab Mukherjee: We have given some schemes. Nor employment guarantee scheme as such but we have given some schemes that will cover the urban poor as well as the rural poor.

Karan Thapar: But when will the manifesto committment to extend the NREGA to urban India take effect?

Pranab Mukherjee: Let us see, how soon we can do it.

Karan Thapar: My last question, what about the food security act? That was another manifesto commitment. It targeted the aam aadmi and although you talked about it, all you have done is to say that you will set up a committee to look into it.

Pranab Mukherjee: No, what I have suggested, please listen. I have suggested is that the draft legislation will be put up on the website, to invite comments from the informed circles. After having those inputs, I will put the legislation. As I have talked on direct tax reforms, direct tax food, similarly, I have stated on the food security.

Karan Thapar: My last question because this is so important in terms of your manifesto or the aam aadmi, when will the Food Security Act become a reality or has it been postponed to the year after?

Pranab Mukherjee: No, I do not think so, maybe in the next Budget. You cannot assume people are sitting there with their pen, ready to give their comments.

Karan Thapar: Thank you Mr Finance Minister, a pleasure talking to you.