All FMs must be ambitious at the start of the year: P Chidambaram

Interview with finance minister

In his last post-Budget press conference as finance minister in UPA-II, P Chidambaram said his intention was not to please anyone before the general elections but to communicate plainly to the people of India that the country was navigating through a difficult phase. He said he had achieved a fair measure of success in stablising India’s economy and aimed to make it the third-biggest after the US and China. Edited excerpts:

How satisfied are you with the quality of fiscal adjustments made?
I don’t think a reduction of Rs 75,000 crore in expenditure will affect growth as some people fear. This represents only five per cent of the Rs 15,90,434-crore expenditure size.

Could you give an estimate of revenue forgone on account of excise duty cuts announced today? Also, could you comment on the timing of the move?

If people buy more cars and more scooters, there will be no revenue loss at all. But if the level of sales remains the same, there will be a notional revenue loss of Rs 300-400 crore over the next 40 days.  In April or May, perhaps we will lose about Rs 700-800 crore. Our estimate was that the economy would pick up in the second quarter; that expectation has partially come true. But recovery has not been even across sectors. Exports have grown smartly but the growth remains sluggish in the automobile, capital goods and consumer non-durable goods sectors. Then we looked at January numbers and decided to make some changes. Unfortunately, our reporting comes with a revenue lag.

As current account deficit (CAD) has been controlled, will you consider reducing the duty on gold imports?

There are pros and cons of relaxing the restrictions. We will weigh those carefully and take a decision. The goal is to contain CAD at a level where it can be safely and fully financed. We will look into it, keeping CAD in mind.

How are you planning to achieve the disinvestment target next year?

The Department of Disinvestment has a list of companies in which we can disinvest. They are going by the prevailing market prices, the timetable required and what can be done and what cannot be done. Based on that, they have estimated raising Rs 36,900 crore through divestment.

Despite a projected narrowing of the fiscal deficit, why are market borrowings rising so fast? Is it because of high interest rates or advancing some payments?

The bulk of the fiscal deficit is because of interest rates. These represent a little over 72 per cent of the deficit. Interest rates are high, borrowing cost is high and, therefore, interest payments go up. If interest rates come down to that extent, the fiscal deficit will be low.

You have decided to continue with the 10 per cent surcharge on the super-rich. What was the rationale for this?

This is an interim Budget, so I can’t amend it. It will be amended when the regular Budget is presented. The first instalment of advance tax is payable on June 15; there will be a government and there will be a regular Budget before that.

You are leaving the economy at a GDP growth of 4.9 per cent and food inflation is still very high. How confident are you of coming back to power?

I'm not answering any questions on elections but I can correct you on facts. When the revisions are made, I expect growth to be around five per cent, but this is not the lowest we have touched since liberalisation. The worst growth rates were recorded in 2000-2001 and 2002-2003. It was 4.2 per cent in one year and four per cent in another.

You are looking at nominal GDP growth of 13.4 per cent. Isn't that a little too ambitious?

Every finance minister must be ambitious at the beginning of the year. If you set your targets too low, you will achieve even lower.

Capital infusion in public-sector banks is coming down year after year. Are you signalling that PSUs should raise their own capital?

Yes, it is a good corporate and business practice to be able to raise your own capital. Banking, unlike other industries, requires capital every year because there are provisioning requirements. The government, of course, will provide whatever it can.

Effective revenue deficit was 1.8 per cent of GDP in this year's Budget estimates, but it is 2.2 per cent in the revised estimates. What is the reason for this?

I'm not very happy about the way effective revenue deficit is calculated. I'm told that ministries still have a problem classifying expenditure under revenue and capital heads. The tendency is to report less capital expenditure, so this is not a good figure on which we can peg any policy decision. It was introduced a few years ago and, therefore, I have not deleted that.

Coming a few months before the elections, this Budget was thought to be a populist one. How difficult was it to resist that temptation?

I don't yield to temptations. I do what I think is right. I have the support of the prime minister and the UPA chairperson. My colleagues were extremely cooperative this year, as they knew it was a difficult period we were going through. I know what other finance ministers in other countries have faced. Certainly, I'm not happy with five per cent growth but today we are one of the few countries that are growing at this pace. We were least affected when the US Fed's taper (of that country's monthly bond-purchase programme) took place.