Indians should feel free to spend

The strains of Mozart and scent of incense have remained the same as six months ago, when finance minister Jaswant Singh met us ET reporters. But now, with the markets booming, the monsoon bountiful and the economy apparently on the verge of a turnaround, domestically and globally, concern has given way to confidence and optimism. The FM is unfazed either by a hesitant economy or by a lagging fiscal. ( Do you think macro economic factors have any bearing on common man''s budget? ) Excerpts from the interview: What has been the response of the economy to your maiden budget six months into the financial year? If it is the totality that you want me to address, then all of you are better at describing it than I could possibly be. Still, if you insist on a response from me, it would amount to atma stuthi. I am much more reassured by the potential and the direction. I am also very gratified that all those factors last year, when I got this job and when you spoke to me, that combination of adverse circumstances and factors â€” drought, war in the Gulf, global slump, sluggish economy, volatile hydrocarbon prices etc â€” that clouded the horizon, are behind us, by Godâ€™s grace. Even the monsoon has been bountiful except marginally in north interior Karnataka and marginally a little bit in Kerala. So happy tidings. On the one hand, we have this overall feel good factor, but in concrete numbers, things look less rosy. The core sectors grew only by 3.75 % in the first five months. Bank credit has not picked up and excise collections, which reflect industrial performance, have not picked up? Isnâ€™t there is a disconnect? There is no disconnect. As you very ably put it, in a good situation, life is not perfect. Yes, there are some buts here. When you say the core sector has not picked up, it is only in the last three months there seems to be some drag â€” it is accounted for in part by the onset of the monsoon. As a non-economist, my understanding is that the core sector shows a decline on account of the onset of rains. Bank credit offtake â€” there are two reasons for the slack. Firstly, I think, that the corporate sector is at the moment â€” I donâ€™tâ€™ think, the figures tell me â€” is sitting on Rs 40,000 crore of reserves. And that is their own money. So they donâ€™t need to go and access funds from the banks. Secondly, banks are not aggressively offering credit. By aggressively, I donâ€™t mean picking up fight with somebody. They are taking the safe recourse of sheltering or parking funds in government securities. The government is not entirely free of soaking a lot of liquidity that comes into the market. Therefore a circle forms. This circle is going to give away shortly. Banks have to move away simply from parking their funds in government bonds to actual credit provisioning. Development financing is an important part of total financing. Are you going to nudge them into lending more ? No, I think it will be a mistake for the finance minister to attempt to run the banks of the country. It is not possible for the finance minister to micro manage the economy. When I got this job, and I have often shared this, my principal purpose was to provide reliable economic management of this country, transparent, open and it should provide a sense of confidence. I donâ€™t think from when I started on the job, we have made unsatisfactory progress on all these fronts. Indian banks total lending as a proportion of GDP is 45%. The comparable figures for the US, China or Korea are over 100% to 120%. What is the progress on removing the institutional problems that prevent banks from lending more? I am not autonomous. It is not so much of a structural problem but an attitudinal issue. The banking sector suffers from what I would call chronic attitudinal timidity. Three factors are often cited. The C3 factors - CBI, CVO and CAG. That is a great retarder to decision making. These are nationalised banks and sitting on very large sums of money. How do I do this? I canâ€™t move unless Parliament supports me in what I wish to do. I am trying to achieve a certain degree of approval from the Parliament in this regard. I canâ€™t hasten the process of democracy. Are you talking about reducing the governmentâ€™s equity in state owned banks to 33 %?. I am not talking of anything. I am talking of obtaining Parliamentary approval. The matter is with the Standing committee. And I, being a servant of Parliament, know that no one can hasten the democratic process or democratic impulse of the country. Large companies can access credit at a rate which is close to the rate at which the sovereign borrows. But small companies which account for 40% of production do not have access to bank credit. The issue here is fundamental because access to credit should be need based and not size based. It is an attitudinal issue again. The second aspect is that the transaction costs of banking are very high. So the bankers quite rightly and, if I may be forgiven for blunt speaking, bankers lazily say that if they have to fill 1,000 forms to disburse Rs 1,000 crore, they might as well give a loan of Rs 100 crore each to 10 people, filling 10 forms and fulfil their lending operations. That is unfortunate but that is the way it is. You were talking of excise collections not doing well. Yes. On the direct tax side, I am satisfied. The progress is satisfactory. We cannot live on artificial revenue figures by sitting on refunds. For the first time, we have cleared all the refunds for the first time in 50 years. Up to the month of June. Possibly July also. I will not let this lag. But excise has lagged. Not customs. Not direct taxes. And I sat with the officers concerned. And they are all sitting together. The revenue secretary is there. It could be a combination of many factors. Whatever the combination, the conclusion to be drawn from that is not that the reduction in the excise duty rate ought to be reversed. There should be no reversal of that move because I cannot agree to that. I guess it will take time for this to be absorbed. There are sectors where we reduced excise duty â€”automobile, steel, etc â€” which have boomed. A sector which has lagged because I lost two months on account of a completely unwarranted agitational approach is textiles. I put my head on the chopping block on the textile reforms that the government introduced in this yearâ€™s budget. It was long overdue. A very necessary reform. Yes, it will stand us in good stead when the textile quotas disappear from the beginning of 2005. But none of you ever said that it was a far reaching reform. But this reform (completing the tax chain the textile sector, ending evasion in the powerloom and hank yarn sectors) â€” we lost two months because people had got used to a no tax regime. Between no tax and minimal tax, no tax is far preferable. So from a no tax regime to a minimal tax regime, two months were lost. But I am more than hopeful of making up this lag. I personally think even in textiles, when it comes to the final figures, we will end up showing a growth. When mill cloth turned cheaper than powerloom cloth for the first time, signalling revival of Indiaâ€™s emaciated composite mill industry, ET carried the story as a front page lead, giving credit to the duty rationalisation announced in the budget for the sector. Thank you. Please examine for a moment. These officers did not understand what I was saying. I am not a textile expert or a tax expert. I had to educate myself. This was a great harm that is being done to the industry and the country. We have 30% of the worldâ€™s cotton yarn which we were exporting as yarn. It is quality yarn. If we had invested and performed value addition to this yarn, which we did not do, there would have been a big difference. I believe that investments are being planned by the textile industry and will take place. If you have to plant a seed of a new idea, my dear friend you have to wait and let the plant grow. You had spoken about a further package for the textile industry. Anything more after the recent clarifications on credit for the sector? I have already announced all of them and received very many thank you notes. You know why I did it. Before this, a reform package for the steel industry, a basic industry was also put in motion. So too I believed that I needed to do this for textiles. But steel is no longer a strategic sector requiring government investment, any Tom, Mittal or Jindal liberally producing all the steel we need. On the other hand many user industries that provide largescale employment and have great export potential are impacted because of the high steel prices. Donâ€™t they need support? See, I follow what you are saying and I agree. But I cannot lose a core sector. I had inherited a situation where the core industry is there. It is not as if we are setting up a core sector. India has invested a lot in steel. Now, you are saying that the use to which the steel is put, say, auto ancillaries â€” they are getting high cost steel. That is a separate problem I have to attend to. I am already attending to a great many of these sectoral issues. I started with health, India is a great health destination. A great many steps have been taken in steel, textiles. On agriculture, we had the first meeting of the advisory council on agriculture on Friday. I am already examining the question of rural housing and easier credit to rural housing. I try to work quite fast. There is a news report that US automobile majors have identified India as a major hub to source their parts. But the import duty on steel â€” 30% without taking into account countervailing duty â€” is far too high. Give me a little more time. We have demystified the budget making process. My job is to manage the economy and not run the economy. Indians themselves run the economy. I have to provide a reliable management of the economy. I donâ€™t have to wait till February comes to take remedial action. With the stock markets booming, is this the opportune time to divest the strategic investments of UTI and liquidate UTI-I? When I got this job, the Unit Trust was in the ICU. There was a possibility of imminent mortality. It is now out of ICU. But is it ready to start jogging every morning? Just wait. Why donâ€™t you leave that to the management of the Unit Trust? We have been able to extract the Unit Trust (from disaster). I put my head on the chopping block and addressed it in the very first week of taking charge. Luckily, it has worked. You had launched several public private partnerships in the budget. But are they materialising? We are moving but not at the pace which fills me with satisfaction. But that is a part of the system. I would really be much happier if we had moved with a sense of urgency and despatch. But now road projects are moving and so are railway projects. I have now been made head of a group of ministers which is authorised to take decisions for airports also. I am a very impatient man in this regard. We must reduce the gap between promise and delivery. On infrastructure, the power sector has dragged down overall growth. What is the status on resolving the Dabhol controversy? It is still a priority. It is not as if I have abandoned Dabhol. There are officers in the ministry of finance who are dealing with it purposefully. Just because we do not come out every day to announce what we are doing or speak of what we are doing, there is no reason for anyone to assume that we are not doing anything. Restraint on speech and reticence about utterances is an attribute of the finance ministry, not a debility. Many banks want to return equity to the government. You are yet to spell out the policy on this. I am waiting for the new governor to be fully in his seat of office and we will address the issue. What is your view on the mounting foreign exchange reserves? On that I have a view point which is not the view point of purists. But I believe that is the correct view point. India and my citizens have for too long have long lived in discomfort and a sense of want. You would perhaps not remember the years â€” like the 1960â€™s, when I was an army officer â€”when we went through a terrible want. It used to be called a ship to mouth economy when our citizens were turned to criminals when it came to foreign exchange management. The country was desperately short of hard currency and it turned a lot of citizens into thieves. Housewives would take money out while travelling. I want India to feel that we have moved away from an economy of shortage and want to an economy of plenty and if its citizens want to spend money, they should feel free to spend. It is a psychological factor also and not just question of an economically manageable size of forex. I believe very shortly we will grow and when we grow, we will need funds to import and I donâ€™t want to go around the world asking for funds. Growth, in any case, will be fuelled by investment, which in turn will generate funds. That is an economistâ€™s view point. I am glad that Governor Bimal Jalan and Governor Venugopal Reddy agree with what I am saying. With forex reserves rising, there has been a lid put on external commercial borrowings proposals of corporates. Are you thinking of easing up on this front? That is an altogether different thing. We have discussed the commercial borrowing situation with the Reserve Bank. We donâ€™t want to turn commercial borrowings into an unrestrained licence and, in any case, if I find that the limit on external commercial borrowing is becoming a retardant, we can easily alter it. But at the moment, I am not convinced. We do want to put a limit on the total volume of commercial borrowings that the country has incurred as part of the total debt. FIIs can invest in short term debt and exit also swiftly. Isnâ€™t it an anomaly that Indian corporates which want to borrow medium term or long term fund abroad should be discouraged? We are not stopping external commercial borrowings. We have only put a cap on it. This short term capital brought in by FIIs is also manageable. I wonâ€™t let it turn into a permanent anomaly. There may be a temporary mismatch. We will attend to it. You are yet to announce the restructuring package for IFCI although you had said it was a priority shortly after taking over. What about restructuring IDBI? I am somewhat saddened that I have been delayed in this. But again I am a servant of Parliament and will abide by what the Parliament orders. I am dealing with it. Watch this space ! You will see. Last year, when you took several proposals on opening up FDI in several sectors to the Cabinet, it did not sail through. What is the gameplan now? By and by, we will be addressing these issues. Tell me, in which country in the world is the economy a pure economy? Nowhere, whether it is Japan, Australia or the European Union or India, particularly with our democracy, all economies are political economies. Of course, the leadership has to manage competing interests. So there is no such thing as a pure economic issue. In a democracy it is always management of the political economy.

Indians should feel free to spend

Finance minister Jaswant Singh wants Indians to feel that the country has moved to an economy of plenty.

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