There is scepticism about government’s ability to contain fiscal deficit at 5.1 per cent of GDP in FY13. A lot will depend on industrial production which is currently sluggish and if the present bank credit off-take is any indication, it may not improve for a considerable time.
Our ability to contain fiscal deficit at the indicated level of 5.1 per cent in 2012-13 would, on one hand, depend on our meeting the revenue projections for the year and, on the other, on containing the expenditure to within the budgeted levels. We have taken into account the slowdown in Indian industry and the difficult external environment, while projecting our fiscal balance for the year. I am confident that we will meet the targets on both the counts.
How well prepared is India to tackle any eventualities arising out of the US-Iran standoff escalating into a war or the Eurozone issue turning into a full-blown crisis?
We have factored these concerns to the extent that is possible to do so at this stage. If additional steps are required to be taken, based on developments in the future, the same will be taken. We must remember that the Union Budget is not the only instrument for articulating and implementing policies. Policy making is an ongoing exercise. Suitable steps will be taken as and when required, including to address the eventualities that you have mentioned.
Do you think measures taken in the budget are enough to contain current account deficit? Don’t you think the government is depending too much on better performance on the export front?
We have been successful in diversifying our export baskets and our export destination in the recent past. We hope to sustain and even improve our export performance in 2012-13. We have taken several other steps to attract capital inflows into the country for bridging the current account deficit. The import of gold into the country is likely to moderate with the introduction of import duty. It has been the second largest item of imports in value terms. Improvement in domestic savings, especially financial savings, will also reduce the pressure on current account.
There is criticism that though the budget contains a series of good interventions, it lacks breakthrough ideas to kick start the investment cycle and investor confidence in the infrastructure sector.
We have done what could be done through the budgetary exercise. Besides, we will take other steps in the coming days to improve business sentiments so that private investments pick up in the coming months. At the same time, the RBI will be reviewing its monetary policy stance to balance the need to support improved growth with the required price stability.
There is a fear that government’s net borrowing at Rs.4.79 lakh crore will crowd out the private sector. It may also keep the cost of borrowing very high and as a result most of the infrastructure projects could become unviable. What is your opinion?
It is true that the net borrowing has gone up in absolute terms from the revised estimates of Rs.4.36 lakh crore in 2011-12. However, the government’s borrowings have to be seen in relation to the size of GDP. For 2012-13, we have pegged the fiscal deficit at 5.1 per cent of GDP as against the revised estimate of 5.9 per cent of GDP in 2011-12. Moreover, in consultation with the RBI, we would manage our borrowing programme so that it does not undermine the growth recovery in private investments.
I would also like to add that the Union Budget has taken several steps to liberalise ECBs to improve the access of domestic industry in selected sectors to have cheaper foreign capital. This would help the industry till such times that the cost of domestic capital declines with moderation in policy rates by the RBI in due course.
Capping subsidy at 2 per cent of GDP is a welcome step. But the fear is that you may ultimately end up in subsidising consumption of agricultural produce at the cost of agricultural production i.e. fertiliser subsidy. How are you going to guard against this?
We have provided adequately for the anticipated subsidies in the Union Budget for 2012-13. On the issue of fertiliser subsidies, we expect the Nutrient Based Subsidy (NBS) Policy to promote the balanced fertilisation through new fortified products and focus on extension services by the fertiliser industry. This will support productivity improvement and improve returns for the farmers. Though urea is not yet covered under this initiative, the policy is expected to reduce volatility in the demand for fertiliser subsidy in addition to containing the subsidy bill.
We are also putting in place a mobile-based Fertiliser Management System (FMS) to provide end-to-end information on the movement of fertilisers and subsidies, from the manufacturer to the retail level. This will be rolled out nationwide during 2012. Direct transfer of subsidy to the retailer and eventually to the farmer will be implemented in subsequent phases. This step will benefit 12 crore farmer families, while reducing expenditure on subsidies by curtailing misuse of fertilisers.
This is your seventh budget as India’s Finance Minister. How do you rate this budget in terms of efforts, constraints and satisfaction?
I have described this Budget as a step for regaining the growth momentum with stability – stability on the prices front and on macroeconomic front. It comes at a time when there is growing uncertainty in the global economy. There are also some supply side constraints in the domestic economy which are being addressed gradually. I think we have done our best under the current circumstances. I would be satisfied only when we have the desired outcomes from these measures.
(Interviewed by Sandeep Menezes)