New Delhi: Finance Minister Pranab Mukherjee is easily the most sought after man in India today. After delivering his Union Budget 2012 in Parliament, he tells CNBC-TV18 that as far as petrol prices are concerned, these are decisions taken by the executive.
Mukherjee says he has chosen to take the conservative route by pegging fiscal deficit at 5.1 per cent of GDP growth. So, for now, global events such as those stemming from the Middle East are not impacting India in a way which could see us slip into any macro economic crisis.
While he does acknowledge the precarious position that India is in, he says there is no need to panic. High inflationary pressures and the current account deficit do not have to be linked to growth, he adds.
The challenges to accelerate India's economic growth are high, yet Mukherjee believes it can be done. His proposal is to trim the government's subsidy burden. He has called for speeding the pace of economic reforms, which have been stalled by political gridlock.
Below is an edited transcript of his exclusive interview with TV18's Raghav Bahl.
Raghav Bahl: In the two hours of your speech, I did not get an answer to this one very short question. Why have petrol prices still not been increased?
Pranab Mukherjee: As far as petrol prices are concerned, it has already been deregulated; I am talking of petrol price deregulation which was done last June.
Raghav Bahl: Deregulated in form?
Pranab Mukherjee: Therefore, there are two routes available to adjust petrol prices - one route is budgetary route and the other route is through the administrative mechanism route. If you look at petrol, diesel, kerosene and LPG prices it was deregulated long before.
Raghav Bahl: They have not been behaving in a deregulated manner?
Pranab Mukherjee: That is for the executive to decide. It is not a policy decision but an executive decision which has to be taken.
Raghav Bahl: If the companies which are suffering so much had the freedom to increase they would have increased by now. Clearly, the principal shareholder, which is the Government of India, is not allowing them to increase and the single biggest burden on your Budget is fuel subsidy?
Pranab Mukherjee: I am not disagreeing with that. That's why I am saying that for many of the issues, I have clearly laid the roadmap for what has to be done. When I am talking of pegging subsidy at 2.2 per cent of GDP for the current year and in the next three-years to bring it down to 1.75 per cent of the GDP that is the objective and I will do it. It has to be done through executive actions. I have never said that it will not be done through executive actions.
Raghav Bahl: Are we then likely to see diesel prices and fertilizer prices being raised? You have laid down a very ambitious target - 0.5 percentage points of the GDP this year itself. What is the roadmap ahead?
Pranab Mukherjee: It is not very ambitious. Even your present level of subsidy is around 1.89 per cent or 1.91 per cent of the GDP.
Raghav Bahl: It's about 2.5 per cent of the GDP this year.
Pranab Mukherjee: This year it is a little more, but it is around that. Therefore, my target is not very ambitious. It is modest and achievable and it will have to be achieved through executive actions.
Raghav Bahl: It is an ambitious target because when prices have moved from USD 100 per barrel to USD 125 per barrel, oil companies still haven't moved. Therefore, it's not an easy thing to do. So when you say you will cut 0.5 percentage points in a year in which you have slipped on your fiscal deficit commitment by 1.6 per cent points, isn't there understandable skepticism on how you will achieve that?
Pranab Mukherjee: There should not be skepticism in the sense because if you compare it with the current year, current year economic situation was difficult. It was not assumed at the time of the presentation of the Budget for the year 2011-2012 because what was the atmosphere then? However, weak and fragile it may be, developed economies started recovering and there was a glimmer of hope.
The eurozone crisis did not assume this proportion, so in the context of that situation we presented the Budget. Therefore, the assumptions which I made during the year have changed and what assumptions I am making now is in the context of the situation which is prevailing, which is very difficult. That is why I have become conservative and I have put it at 5.1 per cent for the current year.
I have talked about reducing subsidies thrice in my budget speech. I have expressed my intention and I have fixed the targets. Now these are to be implemented through executive actions. Your contention is - as long as you have not taken this executive action you are not going to do it.
Raghav Bahl: How do you convince the economy that you will do it?
Pranab Mukherjee: There were certain other compulsive factors that are there that may not prevail now. Therefore, action will have to be taken.
Raghav Bahl: If there is a Middle Eastern crisis, then oil prices could spike to USD 150 per barrel. Has the Government of India done any stress test analysis on what you would have to do if you reach that situation because from USD 100 per barrel to USD 125 per barrel we haven't raised prices?
Pranab Mukherjee: My point is very simple. Unless we take corrective measures, oil will not be available so there is no question of pricing. At whatever price you may like to have it may not be available. Therefore, corrective measures are compulsive.
Raghav Bahl: Therefore, you have to take them?
Pranab Mukherjee: Of course.
Raghav Bahl: The numbers that are emerging are quite reminiscent of 1991 where your fiscal deficit, combined of state and centre is now pushing double digits, there could be an oil shock, your investment rate has become negative, you current account deficit is now at 3.6 per cent. When the UPA government took office, there was a current account surplus in the economy. Are we in danger of slipping into a macro economic crisis here triggered by for example, a Middle Eastern crisis?
Pranab Mukherjee: I do not think so because there are certain other basic macro economic fundamentals and factors which are different from what prevailed in 1991. What was the growth syndrome in the 90's? When did India have 7 per cent GDP growth?
Raghav Bahl: From 1985 to 1990 we grew at nearly 6 per cent.
Pranab Mukherjee: It was 5.6 per cent because that is the sixth plan target I took in 1991.
Raghav Bahl: We are at 6.1 per cent today.
Pranab Mukherjee: It is 6.9 per cent and it is going to be 7 per cent. Please remember that high inflation and current account deficit need not necessarily be linked with high growth rate. In the 1970's we had this, in 1980's we had it and in 1990's also we had it. The question I am addressing is that basic fundamentals are strong. Rate of domestic savings today is not 38 per cent but it is 35 per cent.
Raghav Bahl: It has gone down 600 basis points in the last five years when the rest of the growing economies were going up?
Pranab Mukherjee: Please remember that in not six years, but in these four years you had two major international crises. Except for the oil crisis in 1989, did you have these types of major international crises in 1991?
Raghav Bahl: We had a fairly significant crisis in the Middle East at that point in time?
Pranab Mukherjee: That did not affect us because India's exposure to that extent was not there. Therefore it is incomparable.
Raghav Bahl: I will be very assured if you are telling me that we are very far away from a macro economic crisis.
Pranab Mukherjee: I am not a pessimist and I do not want to convey the message of skepticism and helplessness of India's Finance Minister. That is not my job. My job is to correct it and to point out that, yes, the situation is difficult. We shall have to tackle this difficult situation.
Raghav Bahl: USD 180 billion of trade deficit with just USD 300 billion reserves - these are not things which can just be wished away.
Pranab Mukherjee: We had to deal with the trade deficit when we had USD one billion.
Raghav Bahl: You are conceding my point.
Pranab Mukherjee: Let us not enter into a school debate. I want to convey this message to your viewers and that message is, yes, the situation is difficult but one need not panic. This difficult situation needs to be tackled. After the crisis of 1990, major economic reforms came and every political party sat up.
Raghav Bahl: So we must have that now.
Pranab Mukherjee: No, I don't think so because long before that awareness would come. That is how I got the support of the major political parties on PFRDA. I got the three important legislations recommended by the Parliamentary Standing Committee consisting of the representatives of all political parties. Therefore, if somebody says there is no political consensus that it is not correct. There is a political consensus though it takes time to build up in a multi-party system like what we have but when there is a fractured mandate, you will have to live with that.
Raghav Bahl: There are elements in this Budget of the old command economy thinking of the government. First is the Vodafone retrospective amendment. This is the old - government is right, everyone else is wrong mindset. Then you have ONGC where you sell shares a week ago to the public and then you impose a cess. If I, as a private listed company were to do that, tomorrow morning Sebi would haul me in for insider trading?
Pranab Mukherjee: I am doing it with the revised guidelines of Sebi. I would not have done it if Sebi did not revise their guidelines. Therefore, don't compare between non-comparables.
Raghav Bahl: I am not entirely convinced of which guideline of Sebi you are referring to which has been changed?
Pranab Mukherjee: The latest amendment where the private sector and public sector have been brought at par. The corporate sector has this buyback arrangement and they are extending the same to us.
Raghav Bahl: I am referring to the Sebi requirement for companies to make mandatory disclosures of price sensitive information if they have it. If the government is going to impose a cess, presumably the government has been talking about this within the Finance Ministry for the last 20-25 days. When you have that information and you sell your shares to another shareholder, under Sebi law this is suppression of material price sensitive information and you are therefore subject to very stiff penalties. In fact, it is also a criminal offence?
Pranab Mukherjee: No, I am not aware of the legal position of it. It is not that. The cess is within the control of the government. It is in an Act passed by Parliament via the Regulation Development Act, which empowers the government to impose the cess.
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