'Unless I have 4% agri growth, GDP growth of 9% will not be possible'

'Unless I have 4% agri growth, GDP growth of 9% will not be possible'

Friday February 26, 2010 08:19 pm PST

Finance Minister Pranab Mukherjee speaks to MK Venu on the general philosophy behind the budget

What is the general philosophy behind this Budget?

 

First, I had indicated in my Budget speech last year that I would like to come back to the path of fiscal consolidation as soon as the process of recovery starts. We injected Rs 1,86,000 crore through three stimulus packages last year. The issue was how quickly we can come back to the path of fiscal consolidation. Then the CSO's projections of 7.2% growth for the year 2009-10 and the indication in the first two quarters growth of 6.1% and 7.9%, respectively clearly show that it is possible to enter into a higher growth trajectory.

 

These two were the objectives, in addition to the UPA government's article of faith: inclusive growth. I had to address the problems of the vulnerable sections of society. And then, unless I have 4% growth in agriculture on a sustainable basis over the medium term at least, it would not be possible to have 9% GDP growth. Keeping these objectives in mind, out of the Rs 3,73,000-crore Plan allocation, more than Rs 1,37,000 crore has been invested in the social sectors. Nearly 46% of the total Plan allocations are for infrastructure, 25% of which is for rural infrastructure.

 

Here is the strategy I have adopted: I will give priority to those sectors, which will help me reach inclusive growth, and in my taxation proposals I also wanted to match the higher allocation of resources through the planned route. In agriculture, a 30-31% step-up has been made in the total Plan allocation. I have also given a series of concessions customs duty concession, excise duty concession, fiscal concession so that it can help the agri sector.

 

You've done a lot for agriculture. And as part of your inclusive growth strategy you have also given a lot of relief to the salaried class. So, where are you making this up in overall tax collection and where is the money coming from?

 

I will tell you where the money is coming from. I have given a concession of about Rs 26,000 crore on direct taxes. I have marked out additional resources of about Rs 46,000 crore and am looking at 5% customs duty on petroleum products and Re 1 per litre excise duty on petrol and diesel. Plus, I have conveyed that goods and services taxes should be at par, both are at 10% because I had brought down the excise duty last year.

 

Then, we are going for GST. Then the income-tax concession that I have given to people will give them surplus income. They will spend not only on consumer goods, which will generate demand. I am creating more job opportunities by making additional allocations in NREGA and other rural development programmes.

 

Every measure I have taken in this Budget conveys a message that is not a disjointed, isolated message. This is one common directed message: growth, inclusive growth, rural development, and sustainable higher GDP growth, including one of the most important components, which is agriculture.

 

You also have Rs 40,000 crore as capital receipts under the PSU disinvestment head. Will it be entirely used for capital expenditure?

 

Divestment is important. The proceeds from disinvestment will be used to create a corpus. A part of the corpus will be invested in capital expenditure and the priority will be the social sector. But because of the difficult financial situation, the Cabinet has given me leverage to use the entire corpus not just in the income, but also in capital investment with a priority on the social sector.

 

You have decided to accept the Finance Commission recommendations and will reduce by 2014 the overall debt-to-GDP ratio by 12%. How will you do that?

 

I have stated that I will bring out a road map in the next six months.

 

You have committed yourself to a GST road map, which can be the biggest fiscal stimulus the economy will receive, of April 2011. Do you think there will be a political consensus in the months ahead?

 

I think it is possible to have the consensus because we have worked hard and the state finance ministers have already identified the areas of agreement. The scope of disagreement is disappearing. The 13th Finance Commission has also made a recommendation that in case there is a loss, it has indicated that about Rs 50,000 crore will be available within the next five years to meet the compensation requirement of the states.

 

You are a consensus builder. So, are you confident that politically sensitive sectors like real estate, liquor, and other high revenue generating activities can be brought into the GST net? Will there not be a political problem?

 

Rather, GST will straighten out the issue. I am very confident that once we introduce it and implement it, it will be a win-win situation. If the rate is moderate and compliance is better, there is no reason why problems should crop up.

 

You have outlined an ambitious financial inclusion plan for 60,000 rural habitation with a minimum 2,000 population. Do you think you will be able to meet the deadline?

 

I think with new models of banking it could be possible. These are ambitious targets and we have seen that targets have been surpassed in certain areas. For instance, having set the target of 15% of priority sector lending that should go to minority communities, now we are reaching there.

 

This year, the borrowings you have planned are less than last year's. Are you still certain that this will not put pressure on interest rates if private economic activity picks up further?

 

No, I don't think so. But RBI will always monitor it. As far as the management of the borrowing is concerned, I'll do it in consultation with RBI. Timing will be important. You know the point of time the private industry comes to the market, they want to raise resources. The presence of the government at that point of time in the market may elbow them out. Therefore, the timing will have to be adjusted.

 

You have stated clearly that you will not resort to below-the-line accounting for oil and fertiliser subsidies. You would rather pay upfront subsidy from the Budget. Suppose international oil prices shoot up dramatically in a few months, how will you pay for that?

 

If that happens, we will do something. Maybe adjust it in the books of oil companies for some time.

 

You have shown Rs 74,000 crore of receipts under 'miscellaneous non-tax receipts'. Is revenue from 3G auctions part of this?

 

Yes, some part of it will come from the 3G spectrum auction.