Amidst hopes of fixings the 3 'D's—fiscal deficit, current account deficit and government deficit, Finance Minister Pranab Mukherjee announced the Union Budget 2011-12 on Monday.
In an exclusive interview with Network18 founder-promoter Raghav Bahl, Mukherjee admits that he "could have done better with the budget".
A strong believer of 'even the best can be improved', the FM says, "Real reform is change in the functioning of the government. It does not always mean that it should attract headlines. Reform is when it affects the lives of the common man."
The challenge now is to bring consensus among the political parties; to narrow down the divergence of views on GST this year as "it is not possible to implement GST without the support of state governments. And, I am ready to go extra mile to get state governments on board for GST".
Below is a verbatim transcript of the FM's interview on CNBC-TV18. Also watch the accompanying videos.
Q: The first question is, you came at this budget with a very buoyant revenue, but with also a fairly depleted political capital for the government. Did that constrain you in any way?
A: Not really because as a political activist, I have seen sometimes that there may be situations where ruling parties or governments face a lot of problems, and criticism from different quarters. So it did not affect me that much. My undivided attention was to address the economic problems, which we are confronted with, and how best I can address them through the instrumentality of the budget.
Q: As you know more than anybody else, as you have been in politics for so long, a crisis is actually an opportunity in politics because you sometimes push through much more difficult policy than you could otherwise have in good times. In that sense, do you think you have used the crisis in best possible manner or could you have wasted on these crisis?
A: I am a person who always believes that I could have done better because I believe in the philosophy that even the best can be improved. So from that point of view, I will respond to your question by saying, yes, I could have done better.
But at the same time, I have given clear direction towards tax reforms, I have given a clear direction for need of fiscal consolidation by reducing the fiscal deficit. Reform does not always mean that it should attract headlines. Real reform is change in the functioning of the government, change in the policies and its implementation which will affect the lives of aam admi.
Those are the types of reforms which we require, and I've indicated it. If we can have the Direct Tax Code after the Parliamentary Standing Committee give their recommendations, which they are examining right now, perhaps it would be possible to implement it from April 1, 2012.
Q: But on goods and services?
A: Goods and services tax (GST) requires political consensus because without the support of all the major political parties of the parliament, we cannot have two-thirds majority to amend the constitution. Without the support of the state governments, it would not be possible to implement it.
Therefore, it is a challenge to bring consensus amongst political parties. I may exercise the entire period of this year to narrow the divergences of views so that we can reach (a consensus).
Q: This is exactly what we had spoken about last year as well when we spoke. Someone like you who possibly has the largest amount of cross-party relationships and respect with other political leaders, if you are finding it that difficult then this doesn’t give too much confidence to people that it will be done even in the 12-month period that you are speaking about?
A: Sometimes it appears that from our attitude or approach that we have reached a stage where positions cannot be reconciled. When the entire winter session was washed out, many people thought that it is again going to reflect in the budget session. The same people then sat for days together and we have now been able to find out a mechanism through which we can resolve the issues.
Q: Picking up from that, since the mechanism was that the government agreed to what the opposition was asking for, are we therefore saying that you as the central government are now going to come at this negotiation with a far greater sense of accommodation of the states' demands?
A: I always say that I am ready to cover an extra mile to achieve the objectives which is in the larger interest of the people.
Q: What is it that you can do? Because if I could just embellish my question, last time when we had spoken and I had asked you whether you have plan B incase there is a logjam, and you smiled and you said there is a plan B. But we didn’t see that plan B in operation today?
A: But what I have done, if you have analyzed, I have aligned the rate, merit rate of the state VAT is 5%, I have gone to 5%. Exempted list in the state VAT is 99 items, nearing 100. There are 370 items, which were in the exempted list. As far as the Centre is concerned, I have brought 130 items this year within the tax net of 1%.
Q: You didn’t do anything on CST though?
A: I am working on CST. Please remember that CST was temporary. It was expected that GST will be operational earlier. Therefore, it was to cover the period during that period. And something was to be done by the states, for instance the adjustment of the VAT. For instance they have adjusted from 4% to 5% largely in this year. On CST, on the compensation, even in the Thirteenth Finance Commission they have indicated that about Rs 50,000 crore will be available to them.
If it is required for more money, I would not mind providing that. I can assure the states that there would be no revenue loss but certain other things are also to be done. The IT platform is very important. Several chief ministers and ministers told me that unless the IT platform is ready, it would be very difficult to implement it. There has been substantial progress in the IT platform. NSDL is going to start the pilot projects with eleven states. These are not big tickets or it captures the headlines, but real work is being done in those areas.
Q: Can you lay out a timeline for us?
A: It is very difficult to lay a timeline even for the constitutional amendment, which I am going to introduce. It is not that there will be no discussion further. It will be discussed in the standing committee. It will be discussed in the parliament when it is passed. As I mentioned, without the support of the principal opposition parties and others, it cannot get passed. So we shall have to come together.
Q: So April 2012 is also something that is not likely to happen, or are you quite confident that you will use all the political capital that you have to push it?
A: Let us not take an extreme view. We are trying with the hope that we will be able to succeed. But there may be some problems. The short point which I am trying to drive at is that it is not what appears to be positioned is reconcilable. It is not like that. Yes, there are divergences of views, but convergence is also emerging. Gradually more and more states are coming around.
Q: I just want to switch from GST and now try and understand some of the budgetary arithmetic. It is one of the few budgets where we are seeing the subsidy level in your arithmetic coming down but we want to understand how this is happening. Clearly the only way to my simplistic mind it can happen is if we move towards free pricing of diesel and cut petrol subsidies. Is that something that you have factored-in in your calculation?
A: What we have done is we have decided that certain petrol price will be market related and it has been done from last June onwards. For diesel, we have decided that it will be done at the appropriate time, which has not yet been decided.
Q: But the level of subsidy that you have shown, it seems to suggest that the appropriate time is going to be very quick?
A: Let us not prejudge at what point of time we are going to do it or when we are going to do it because on oil it will be too premature to make any comment because the situation is so volatile. Nobody can say at what level it will settle today.
Therefore if I say x amount today it maybe x + x + x. If I say that it is a substantial quantum I may gain, it can be depending on the international situation. I will give you one example between August 2008 and January 2009. In August 2008, prices per barrel went to as high as USD 147. In January 2009 it came down to in the neighbourhood of USD 50 per barrel.
Therefore it fluctuates so much that any assessment would be too premature particularly at this point of time. Therefore, my direction is that subsidies are to be reduced. In kerosene, fertiliser and LPG I would like to go directly to the consumers.
Q: But you have only got a task force that has been constituted?
A: That is why I have fixed the deadline. By June of this year they will give their recommendations. And I have also stated that I am hopeful that by March 2012 I will be able to implement it. And the person who has been entrusted with this job, everybody in the country has great faith in his competence and capacity to deliver.
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