Aam admi to gain the most: FM

Fresh from presenting the Union Budget, Finance Minister P Chidambaram spoke to ET exclusively.

By TNN | Mar 01, 2007, 12.57 AM IST

This time round, it was a tricky situation. Rising prices, inflationary pressure, electoral reverses and the mounting demands from different quarters were some of the crucial factors that had to be addressed in his fourth budget. And, Finance Minister P.Chidambaram did a fine job of balancing several factors without ruffling many feathers. Fresh from presenting the Union Budget, Chidambaram spoke to Economic Times exclusively. Excerpts from an interview by M.K.Venu and T.K.Arun.

Q: What is the big message in your budget?

A: The big message is that growth story is intact. The other message is that we are now distributing the gains of growth to a larger number of people.

Q: In order to distribute gains of growth, you haven’t indulged in high expenditure. Expenditure growth is a modest 17%?

A: So what is wrong with controlling overall expenditure growth?

Q: The point is you have had such robust revenue growth in recent years. So there could have been expectation that you would distribute a bigger largesse. But you have stuck to the path of fiscal rectitude...

A: That I had made very clear from the beginning that we will stick to the FRBM targets. There was no question of moving away from that.

Q: Given the political climate was there pressure on you to spend more.

A: No. Where is the pressure you are talking about? The budget exercise is a process undertaken by the finance minister in close consultation with the Prime Minister and inputs from other ministries and quarters. Inputs are always welcome but why should you see that as pressure.

Q: So what is there in the budget for the Aam Aadmi?

A: Well, I can turn around and ask you what is not there in the budget for the Aam Aadmi. If I offer one hundred thousand scholarships for children who might otherwise drop out, isn’t that for the Aam Aadmi. If I provide for jobs for the physically challenged, isn’t that for the Aam Aadmi. If I offer one crore families social security through an insurance scheme, is that not for the Aam Aadmi. If I offer seven million structures for ground water recharge, isn’t that for the Aam Aadmi. If I undertake to restructure over a thousand ITIs, isn’t that for the Aam Aadmi. So who is this Aam Aadmi that you are talking about, and we are talking about? The beneficiaries of all these schemes are Aam Aadmis.

Q: What are the anti-inflation measures in the budget?

A: All customs duty cuts and excise duty cuts are disinflationary. The budget can only take fiscal steps. The monetary steps are taken by the RBI. We have hinted that more monetary steps could be taken in due course. The government has tried to address the supply side issues in the agriculture sector-- like supply of seeds, water, fertilizer and so on. Now, the various concerned ministries must act to ensure that supply side measures take effect.

Q: What have you hinted on the monetary side?

A: Well the Economic Survey says that the CRR and Repo rate have been increased four times in recent months. More monetary measures will be taken by the RBI.

Q: The international metals prices index has gone up sharply. Given this backdrop how much can the budget do to address inflation in manufactured items?

A: I have said so in the budget speech. Global metal prices have exerted pressure on the domestic prices. There is nothing we can do about it. We have to live with it.

Q: Corporates seem disappointed that you have raised the effective tax rate through another cess and higher dividend distribution tax?

A: I have not raised corporate taxes. On the contrary, for twelve lakh firms corporate tax has come down from 33% to 30%.

Q: In the budget speech you have offered the surcharge waiver to small corporates. But big corporates can also technically have a taxable income of less than Rs.1 crore and not pay the surcharge.

A: It is not big or small firm, the criterion is your taxable income. If you fall below the threshold, you don’t pay the surcharge. Just as on the personal income side there is no surcharge upto Rs.10 lakh taxable income, similarly on the corporate side there is no surcharge upto Rs.1 crore taxable income. By and large it is the small firms that will benefit. Surely a Reliance or Tatas or Infosys are not going to declare a profit of Rs.1 crore. If they do, what will happen to their share prices..laughs.

Q:You have imposed MAT on software companies. Who all are outside the ambit of MAT now?

A: Well, there are some more outside the MAT ambit. Like the SEZ companies.

Q: Can you bring them also into the ambit of MAT later?

A: Let us see. We will have to look at the SEZ Act. If you want to extend MAT to SEZs that will require a larger consultation process. There is a group of ministers on SEZs. We can take a comprehensive view of all these issues at a later date.

Q: Are you being a bit pessimistic by assuming an overall growth of 17.5% in tax revenue, especially considering the pace of revenue growth so far?

A: I don’t think we are taking a pessimistic view of tax growth. Infact, we are taking a realistic view. This is predicated on the assumption of 8% to 9% GDP growth. If growth exceeds that projection, we will get more tax revenues.

Q: What inflation are you assuming for 2007-08?

A: Well, we are assuming an inflation rate of less that 5%.

Q: Is the political economy of inflation troubling you. How do you see prices of essentials behaving in the near future?

A: In 1998-99 when the NDA was in office the inflation rate was over 7% for 12 weeks. Later in 2000-2001 the inflation rate was over 6% for 48 weeks. In 12 of those weeks the inflation rate was above 8%. I don’t know how newspapers described the inflation rate at that time. I can’t recall. And when we came to office in 2004 the inflation rate had already crossed 6%, and it was rising. It rose upto 8%. We subsequently moderated it to 3.98% by end 2005. So the past record shows that governments have succeeded in moderating inflation rate. And I am confident we can moderate the inflation rate once again.

Q: If supply constraint is the main reason for rising inflation, how long will it take to supplies to build?

A: I don’t know. We were able to build sugar supplies in four months with policy measures. Now wheat supplies should improve this month, by end March. That leaves us with pulses and edible oils. Edible oils can be imported. We cut duties on edible oil earlier. Even today I cut duties on them. Pulses production is also expected to be higher this year than last year. As the supplies improve, prices will moderate.

Q: Was banning of commodity futures in some items really needed? How does it help the farmers?

A: That was a decision taken by the forwards market commission. One month ago they stopped trading in Tur and Urad futures. Now Tur prices have come down. I don’t know whether there was a direct cause and effect, but prices have come down. Now the FMC has taken a decision to curb contracts in wheat and rice. Let us wait and see what happens.

Q: What did you think of the Indian stock market behaviour?

A: Well, global markets too were down. The Chinese market went down 10% before recovering about 3%. The Dow index also fell about 3.3%. Other indices in emerging markets, like Brazil, were also down. Our markets were not insulated from that trend.

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Aam admi to gain the most: FM

Fresh from presenting the Union Budget, Finance Minister P Chidambaram spoke to ET exclusively.

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