Yashwant Sinha, who presented five Budgets under the Vajpayee government, tells Shikha Shalini the present government seems unable to meet popular expectations on economic management. Edited excerpts:
The present government seems to be searching for a magic wand to curb rising inflation. What’s your reaction?
It is true the rising inflation trend hasn’t been checked. If the government is seen as helpless, the trend gets reinforced. I’m surprised at it, with all the financial and monetary control tools in their hands. An honest intention by a self-confident government with the right blend of fiscal and monetary control measures without retarding the growth of the economy is the need of the hour.
It is being said the increased purchasing power in rural areas due to development expenditure made under schemes such as the rural jobs scheme, MGNREGS, also responsible for the price rise.
Given the size of our economy, the Rs 40,000 crore spending under MGNAREGA is a very small percentage. The inflationary trend is due to the rising cost of essential commodities.
What is your critique of the present economic policies?
There is complete ignorance of the supply side. An attempt to curb inflation only by depending on monetary tools such as increasing the interest rate, squeezing liquidity, etc, can only bring a short-term impact. There is rising food prices: the demand for food is inelastic and monetary policy becomes ineffective due to this. Fiscal policy should focus on checking the fiscal deficit as well as promoting the supply of essential commodities.
Your government also couldn’t check the fiscal deficit.
It is not true. We continuously tried to check it; our government was instrumental in enacting the Fiscal Responsibility and Budget Management Act. Lower economic growth, combined with implementation of the Pay Commission recommendations was, up to a certain extent, responsible for the increased fiscal deficit in our government. But we were successful in controlling inflation.
How do you see the coming Budget?
Government expenditure needs curbing to check the fiscal deficit. The burden of subsidy should be minimised and its end-utilisation by the targeted beneficiary ensured. I do expect stringent fiscal measures.
Do you expect service taxes to be widened?
No, a large number of services are already covered.. The only possibility lies in deepening of service taxes.
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What other measures can be taken to increase revenue?
Widen income taxes. The taxable population of India is 30 crore, of which only three crore are paying tax.That is wrong.
How do you react over the rising trade deficit in recent years?
We should focus on export promotion and give equal importance to import substitution. We can take the example of trade imbalance between India and China. Their exports to us are double our export to them.
What kind of reform measures can be taken for taxation in the coming budget?
I do expect incorporation of some of the valuable suggestions of the Direct Taxes Code report and discussions. Lack of consensus among the states toward implementation of a Goods and Services Tax should be sorted out as soon as possible.
What measures could you not take as finance minister?
Of course. we could not achieve our target to provide basic facilities like roads, water and housing to every citizen. Although, we made a good beginning with the introduction of the Antyodaya Yojana and Annapurna Yojana towards food security.
What can be done regarding black money?
There is now a mood and consensus among nations, as in the G20 meetings, to remove tax havens and banking secrecy laws. And, promotion of a Financial Action Task Force. These are all important steps. India must take some stringent steps. It is in a position to put pressure on such tax havens to disclose names. The government should also disclose the names it has. No treaty would be violated.
What can be done on foreign direct investment?
In recent times, FDI has declined and we must adopt a transparent policy. India has to ensure a trend of credibility for the world to invest. I dont think there is any hurdle in improving FDI if the government takes some firm decisions.
There is a situation of political unrest and unease on corruption in our system. Aren’t both government and opposition responsible?
Yes, people are dissatisfied; it recallas the mood in the pre-Emergency (1975) period. Manmohan singh is known for its honesty and immense grip in setting economic policy. But he is the man who has seen all the corruption and scams through open eyes. It’s an example of the Peter Principle (that every person rises up to the elvel of his incompetence).
But the credibility of the opposition is also questionable. Would you do a better job?
Undoubtedly; we proved this under the leadership of Atal Bihari Vajpayee. During the NDA regime, we had control over inflation. The UPA government doesn’t seem willing or able to.
Have economic reforms been successful?
Economic reform is a continuous process that can’t be confined to any time limit .The present government is still not able to accelerate the growth of economic reforms.
