Everybody is very pleased with the micro elements in the Budget but there are concerns about the macro-side -- the fiscal deficit is the highest for the past ten years. Have you sacrificed macro-prudence for micro-populism?
It is very difficult for me to say yes. As a non-economist, which is what I am, the current year's fisc at 5.9 per cent has to be considered against the congregation of really exceptional circumstances -- the worst drought, the global downturn, the Gulf, oil.
All of these are very significant. Plus, we have a very significant shortfall in divestment receipts. Then agricultural growth is down to -3.1 per cent from 5.7 per cent.
Even if growth was at zero, I think GDP would be touching 6. So don't think I am sacrificing anything -- one of the five priorities is the fisc.
In any case, I am really a trustee of the country's finances. A minister of finance cannot merely be an accountant or only an economist. The government is trying to find a balance between two competing yet valid interests.
But why have you not made stiffer efforts to bring the deficit down for next year when growth is expected to be better?
There are two things. One, the tax-to-GDP ratio has improved. Then the current year's tax revenue collection has grown at 18 per cent.
For the next year, I have deliberately kept it at 13 per cent because I want to be conservative and maybe exceed the target. Last year, revenue growth was placed at 30 per cent, an unattainable level.
The revenue estimates are always very optimistic and the actual numbers are much lower. Are you saying that you are being more modest about your assessments for next year?
I do believe that the whole slew of measures that the government has announced -- for textiles, gems and jewellery, infrastructure, services and so on -- will give a great push to economic activity.
I have no doubt that the great synergy of all this combined economic activity will generate a great deal of production. And the more the production, the more the revenue. If I then peg revenue growth at 13 per cent I don't think I am making a mistake.
One area where you have been fairly ambitious is your target for divestment. Over the past decade, divestment targets have never been met. Yet, your target for next year is even higher at Rs 13,000 crore. Are we going to see a major boost in divestment? And what about airports, are they really going to be privatised?
There are two questions there. On divestment, I live with my colleagues and I believe that the experience and learning process of the debates that were generated last year have had their consequence.
Everybody is so much more self-confident now. I don't, therefore, think that I am being ambitious. Secondly, a lot of things are in the pipeline.
On airports, I would like to share with you that the matter went up to the cabinet. The civil aviation minister had a programme, and the cabinet said no, go back, sit with the finance ministry and work something out. So it is something we are doing with the consent of the cabinet.
Are you disappointed with the response of the stock markets?
Well, I haven't had a chance to track it.
It's flat.
Well, I don't want to say anything. I would be concerned if the stock markets reacted in a mercurial manner. I would much rather they took stock, reflected on the whole thing and then reacted.
The net impact of all that you've done in the budget is effectively zero in terms of additional taxes. Was that a conscious political decision?
I don't think it was a political decision. I didn't go about arriving at the decisions on taxation setting an arithmetical objective first.
But what about the arithmetic of votes. Would you say this is an election budget?
How can you say that. Take the emphasis on health. It is long overdue. The health of some sections of our population is abysmal. I also think post-9/11, post-Gulf, the oil-rich world which earlier went to Europe or the US for medical treatment will find it increasingly difficult to do so.
We are the natural area for them to come for their health. This is why I have said that India must move towards becoming a global health destination.
One area where you have taken a fairly tough decision is interest rates. You've actually reduced small savings interest rates more than the market expected. Is this a signal for lower interest rates?
In interest rates the ministry of finance is not autonomous, it has to work with the Reserve Bank and we have worked all this out with them, and in consultation with an eminent economist in the governor of the Reserve Bank.
Secondly, as a non-economist let me share something with you. I have two grandchildren now who are two and three years old. I continue to benefit from the high interest regime. I don't have much investment, but if I had, I would earn a great deal -- but at the cost of my grandchildren's future. I have to move to a lower interest rate.
What you have done on interest rates does not extend to the employees' provident fund, is that correct?
That's right. The employees provident funds manage their own funds. They have taken a deliberate decision to maintain a particular interest. I can overrule them but I don't want to. That is a decision that they must, in due course, come to as a rational, prudent economic decision.
But as finance minister have you given a signal to the Reserve Bank and so on to lower interest rates?
Yes, I have but the finance ministry is not a dictatorship, I can only advise.
If you believe that growth this year will be down to 4.4 per cent, what do you expect it to be next year?
I don't wish to speculate. You can't construct your GDP growth rates on ifs. Let me put it this way: I do not think the 8 per cent target that the prime minister has fixed is unobtainable. Not for next year, but I do believe that India is in a position to cross 6 per cent.
But that cannot be the assumption behind your budget...
No, but I cannot make an assumption.
If you look at the defence budget, they have not spent 20 per cent of their allocation, this is something very odd.
This is an unfair observation. There are three anomalies in defence procurement. First, defence budget procurement must never be determined on a 12-month cycle, it is a 24-month cycle. Secondly, defence weapons procurement suffers from the 'C3' factor -- the CVC, CAG and CBI.
They stymie decision-making and then say you are not making a decision. Then in defence procurement, the total politics of the weapons supplier is a great factor in determining the timing. It's not like buying groceries. Plus, the decision-making process is turgid and too rigidly bureaucratic.
But surely the defence ministry would factor in all this before they put a set of numbers before you?
No, it's just that over the years everyone has built up a mentality that you must ask for more than you need. This is why we have brought in cash management for the first time. But don't go by the allocation.
Go by the attainment of physical targets. The defence ministry will not lack for funds when it comes for weapons procurement.
On subsidies, apart from a small step you have taken in fertiliser pricing, you have not really attempted to bring subsidies under control. You are still stuck with that burden.
You are right. My food subsidy has gone up to Rs 28,000 crore. But then, you are also saying that people are not getting food to eat and we have such stocks of foodgrain. Now how do I steer my course?
In India, the subsidy per cow is $2 a day, which is more than what some of my countrymen earn. If I have to go away from food subsidy, I will have to start reforming the entire agricultural mechanism. I can't go to the symptom end of it.
You have taken some tough decisions, but are there going to be any rollbacks?
I don't think so. But the dynamics of coalition politics have to be considered. These steps are not taken in a fit of amnesia. The increase in fertiliser, for instance, is hardly anything.
I hope your allies are listening to all this!
Well, I am glad this discussion is taking place on Friday and not tomorrow because no one will listen tomorrow (on Saturday) because of the cricket match!