You can't have a grand plan year after year: Sinha

Finance Minister Yashwant Sinha explains the thinking behind his fifth Budget.

There have been a lot of reactions to the Budget of which the first is the sting in the tail in the form of income tax surcharge. At a time of a recession, was it really necessary?

This sentiment factor that you're talking about is purely temporary. The point to note is that, compared to last year, I have raised it only by 3 per cent. And I've explained the reason.

Our troops are mobilised on the border. Nobody knows how long they'll have to stand there. We have a cost attached to it and that has to be provided for. Actually, what I'm getting is a little over Rs 27 billion. Therefore, to read too much into this surcharge is not correct.

What would be the main political message of your Budget?

Both the Railway Budget and my Budget were finalised well before the political message that you're talking about emerged. Even after that, as far as my Budget is concerned there was some opportunity to change things here or there. In all fairness, I must tell you that we decided that we would go by the interest of the country rather by than the interest of politics.

...Except on interest rates, where you could have done more but didn't want to upset the middle class and the small saver...

Yes, you have been a votary of a 150 basis point cut. I have taken a lot of flak for that, but this year I said, we have the Y V Reddy committee report to go by and I reduced it by 50 basis points. But at the same time, I have taken the very important step of making it autonomous and market-linked.

One of the things you have done is to earmark Rs 180 billion on Plan outlay. Wouldn't it have been better to put the money in the hands of consumers and buy your way out of trouble - to pump prime? Will this Rs 180 billion really reach the people?

My short answer is yes. We have decided deliberately to make more public investment in infrastructure. There are some areas of investment where private sector can't go - village roads, power, national highways, railways - where the government has to make investment.

Increased Plan spending is one solution. Are there enough growth impulses in your Budget? The initial impression you get is that there isn't.

Look at one provision that I have made on the tax front - the 15 per cent additional depreciation. This is one area where I have provided some incentive. There are there are many sectoral incentives - textiles, tea, infrastructure.

My conviction is that the overall economy will benefit from the encouragement that we are providing to these sectors.

So you look at the totality, unless I had gone for a substantial drop in tax rates, which I am not in a position to do because of fiscal constraints, I have done my best by way of spreading benefits across sectors which were in need of them.

Was there a trade-off between a slowdown and fiscal prudence? Which one was the main priority?

I have tried to establish a balance. There is no constitutional requirement for me to earmark Rs 180 billion additional money for Plan expenditure.

I could kept it Rs 1,000 billion and saved that money. But I have knowingly settled for a higher fiscal deficit because I thought this is the way to move the economy forward.

The Reserve Bank of India has argued that it would be better to finance the deficit by printing money versus borrowing from the market, and that's the way to get the ball rolling, especially when inflation is low.

It is possible to print money, but ultimately, it will square up. If you look at total government borrowing programme, it is not massive. We have tried to moderate it this year.

We will not really be crowding out the private sector - in any case, banks are flush with funds and it is not that which is constraining the private sector. And inflation is something that once out of the bottle, is very difficult to put it back.

You have addressed a lot of specific issues but there is no sense of a grand plan in this Budget. What is the macro-economic picture?

You can't have a grand plan year after year. The grand plan was there last year when I set the agenda for comprehensive second-generation reforms.

I am trying to consolidate on those gains - we are trying to bring the states within the reform fold and therefore we have made an incentive fund available to them. It is my belief that if the states were to cooperate and we achieve reforms in agriculture and the urban sector, we will really be on the move.

One of the areas that have come in for criticism is that you have raised prices by raising excise duty on several items. Couldn't you have held back given the demand situation?

Not really. For one thing, it would have been a departure from the principle that I set out last year that we have to do away with exemptions, now that we have modest regime.

The only item that is at 8 per cent excise duty is cotton yarn, everything else has moved to 16 per cent. I have brought several items that were at 32 per cent to the 16 per cent - now only eight items remain at 32 per cent....

But no downward escalator The downward escalator is not possible, nor is it desirable.

If you look at the numbers in your speech, the sense you convey is that your additional taxation will net about Rs 110 billion, which is one of the heaviest in recent times. But it seems a lot of this is just taxes on petroleum products, which now come into the Budget. If you take away oil, the actual additional taxation that you are doing is quite small - about Rs 30 billion - Rs 40 billion. Is that correct?

Absolutely. In reality, the taxes being raised are minimal. The major revenue is coming from the petroleum sector.

Through your five budgets you have been very generous to the state. But despite that the states are in terrible shape financially. Do you see the fiscal condition of the states improving?

Apart from me, the 11th finance commission has also been very generous. It is a matter of concern that the financial condition of the states has deteriorated in the first and second years of the eleventh finance commission regime - when many of the awards have been frontloaded.

At the same time, there is a much greater realisation of the need for fiscal prudence among state finance ministers than there was some years ago.

You had set yourself a target where you said the fiscal correction would be half to one per cent of GDP every year. Yet if you look at your last three Budgets, you inherited a deficit of 4.7 per cent. You are now at 5.7 per cent. In a sense, housekeeping has got worse. Do you think it will come under control?

I have been unlucky. I have not allowed expenditure to overrun - much against popular belief. It is largely on account of the Rs 200-odd billion revenue shortfall that the fiscal deficit has gone up. If revenue had kept pace, we would been able to keep the fiscal deficit to the target. For the next year I have been realistic. I could have brought the fiscal deficit down below 5 per cent. But I wanted the country to know that this is the situation and if we're unlucky again, the fiscal deficit would be high. But we will keep expenditure under control.

Through your five Budgets what are your major concerns?

My major concern is that economic reforms should not become hostage to political interests. I will plead in Parliament, outside Parliament, with my detractors, my friends that we should all put our heads together and ensure that the economic reforms agenda doesn't suffer.

It's like crossing a forest in the darkness of night. You have to cross it. You can't stop because a tiger will eat you up. That is the great challenge. The reform agenda is still incomplete, there are lots of things that have to be done.

In the next five-year plan, which starts in April, you said you will accelerate to let's say 8 per cent growth. Instead, we've seen that in the last five years have been slower than the previous five and if reforms now get stuck, then you're heading for trouble. You share this perspective.

I share that perspective, but if you look at the last three Budgets I have tried to take the reform process forward. I will not claim 100 per cent success but I would say there are large areas where we have succeeded. I mean, nobody talks about insurance, which many people opposed.

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