'The Budget needs to lose its relevance'
If you had seen Finance Minister Yashwant Sinha after he had presented the Budget, you would immediately have noticed one thing: his smile was conspicuously missing.
He also did not crack amusing one-liners or employ Hindi film titles to create ripples of laughter as he presented his Budget. He was solemn and continued reading out his Budget speech even though the Opposition was shouting him down. Minutes after his Budget presentation, brickbats came in thick and fast -- from the industry, the politicians and the common man..
In an exclusive interview with Ramesh Menon in his North Block office, the finance minister who is determined to walk the road to reform, says he knows that many are unhappy with the Budget but what he did this year was inevitable.
You presented a dream Budget last year. What happened this year?
You cannot have dream budgets year after year. The definition of a dream Budget in the Indian context is to give up taxes.
Chidambaram's Budget was considered to be a dream Budget as he reduced taxes. My Budget last year was considered to be a dream Budget as I reduced taxes. And if you do not raise taxes and you raise a paltry sum of money to run the affairs of the country, it is seen as a great Budget. But that is an unrealistic way of looking at it.
Everybody wants taxes to hurt someone else. I did have to take some unpopular decisions. I had no choice. It was really inevitable.
What were the political compulsions you had to tackle this year?
There were no compulsions or pressure on me.
What was it that you wanted to do in the Budget and could not do this year?
There were lots of things I wanted to do. But let that remain a secret with me. I do not want to talk about it.
The common man feels he has to bear the brunt of taxation.
Where is the common man being taxed? I have definitely included high net worth individuals to take the burden. Look at my tax proposals. All my tax proposals have been carefully crafted. This Budget only affects those with high incomes.
Yes, there is a 5 per cent surcharge, but it is really such a small burden. I do not understand why people are so disappointed.
Is India truly on an economic path to reform?
I would say yes.
For India, there is no other way except to move on the path of economic reforms.
But there are just too many political hurdles coming in…
There are many hurdles. That is why economics will have to be separated from politics in India.
If we are going to hold economics as a hostage to politics, then we are going to continue having a lot of problems.
This Budget assumes that revenue will grow by 20 per cent. But in the past, it has been 9-10 per cent. How do you expect it to leap this year?
The actual growth is only in the region of 10-11 per cent. The rest is additional resource mobilisation, which we have done. Much of it comes from the tax on petroleum products. I had to do this to provide for subsidy on LPG and kerosene. This was inevitable. Otherwise, the burden would have been greater.
There is overcapacity in the economy and not enough demand. Now, with lesser disposable income, the slowdown will be prolonged…
Why are we talking of lesser disposable incomes? The increase in tax is only 3 per cent. That 3 per cent increase will bring in revenue of Rs 2,700 crores (Rs 27 billion), which is so minimal even in an economy like India. Apart from the sentimental setback, there is nothing else in this.
Last year, I had given up Rs 6,000 crores (Rs 60 billion) of revenue. It still continues. I have not taken it back. Now, if demand depends on tax concessions, why did demand not pick up immediately in March last year?
Many economic experts say that the Budget is losing its relevance year after year.
Once policies are set and taxes are rationalized, the Budget should not have the mystique that it has today.
How do you see the state of the Indian economy?
India is in the throes of an industrial slowdown, which has depressed the growth rate.
Agriculture has done well. Services are likely to pick up. The industrial sector has been the centerpiece of reform programmed so far. This has run out of steam because of cyclical reasons. I am hoping that with the steps I have taken both this year and last year, industrial growth will happen.
The global slowdown has also slowed down industrial growth in India.
Industry captains say your Budget is good on recommendations but poor on implementation. For instance, nothing has happened to group retention pricing schemes you announced last year.
We have set ourselves a target of five years for group retention schemes. We are working on it.
How do you plan to bring down the fiscal deficit?
By raising the tax to GDP ratio. That must now be the main thrust of our effort. Secondly, we must keep expenditure under check. We have got the voluntary retirement scheme going. But it is a long-drawn process. It does not happen overnight. People will take advantage of the VRS in course of time.
How are you planning to tackle growing Opposition to reform both within and outside your party?
We will reason with them.
Honestly, what do you see as the most daunting challenge in the months ahead?
The most daunting challenge for me is to revive industrial activity in India to such growth levels that it will be able to create employment and sustain a reasonable level of growth. This is doable.
The 10th Plan envisaged 8 per cent growth. Do you think it will happen?
We are going to try our best to achieve it. It is that can be done. The 8 per cent growth rate will come from all sectors of the economy.
In the last five years, if you look at our growth figures, you will find that if industry has done well, agriculture has not. Similarly, if agriculture has done well, industry has not. In the past years when growth rates hit 7 per cent plus, it was actually a combination of both. But that has not happened in the last few years. I hope we will be able to achieve both industrial and agricultural growth in the coming years.
You laid a lot of emphasis on agriculture this time in your Budget speech. What is it that needs to be done?
One key thing is to unshackle the farmer. I used the phrase, "freedom to the farmer". The farmer must be able to sell his produce at the best price to whomsoever he wants. This is something that he cannot do at the moment.
You need a different prescription for agriculture. The same tools and rules used to boost industrial growth cannot be used for agriculture…
Yes, we need a different prescription.
Is it being worked out?
We have talked about liberalising the agriculture sector. We have set a very clear road map for that.
As far as power reforms go, it is for the states to carry it forward.
It is. But we have some incentive funds for them. We are urging the states to do their bit. We are working with the states to figure out the electricity board dues and so on. We are encouraging them to revise their tariffs and improve distribution and transmission.
You are hoping for 20 per cent growth in tax revenues. Will it work? Are you being too optimistic?
I have already said that we are working hard to achieve it. We hope to succeed.
China is growing by leaps and bounds despite its bureaucracy. What is it that is driving China and not India?
We run on two different kinds of systems. Each has its own strengths. I would say we have many areas that are stronger than China and there are some areas where China is stronger. But there are areas where we should emulate their example and learn from them.
How did Mrs Sinha react to the Budget?
(Smiles) She was upset with the Budget. She was not happy that the LPG prices went up.
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