Budget 2001: Full Coverage

Q:The reduction of dividend tax from 20 to 10 per cent along with areduction in the interest rate on small savings has been criticised ongrounds of equity. Is this a fair criticism?
A: No I do not think it is a fair criticism. The rate of interest on smallsavings has been very high in recent years and has had no relation to therate of core inflation, and we also give guarantees and tax concessions onsmall savings. So the real rate works out to much more than what one getsupfront. The second is that this influences the entire interest rate in themarket, so the rates of interest in market are high and the Indian economycannot achieve competitiveness which such high interest rates. I was theguilty party because the government fixes the rates of contractual savings.Therefore, we have to do something. If you recall, the PM's economicadvisory council recommended a rate reduction of 2 per cent. I reduced it by1.5 per cent and I have also said that all these benefits would be passed onto the state governments.

Q:Can we now expect the Reserve Bank to follow up your fiscal initiativeswith a further reduction of the prime lending rate?
A:It is up to the Governor of RBI. I would like to mention that apart fromreducing the rate of interest on contractual savings, I have been able torestrict the fiscal deficit to the budgeted level this year. And for thenext year I have been able to bring it down to 4.7 per cent.

Q: Do you think you are creating an environment for a further reductionin the interest rates?
A: As far as fiscal policy is concerned, I am creating the necessaryenvironment.

Q: Can we expect action in Bombay (RBI rate cut)?
A: This is up to the Governor (of the RBI) and this is a matter in which wedon't interfere.

Q: On the fiscal deficit, are you sticking to the letter and spirit ofthe Fiscal Responsibility Bill?
A: Well, I was very keen to do it - let me very candid on this - and workedon it, until we came to the conclusion that if we go beyond 4.7 per cent wewould be putting some burden somewhere which would be hurting the long-terminterests of the economy. And as I said in my speech, I settled for theimpulses of growth.

Q: You are assuming a pick-up in the rate of growth for your taxcollections. What are the numbers you are looking at?
A: We don't hazard guesses. We estimated direct taxes, growth of GDP. Thisis based on a nominal growth rate of GDP plus inflation after which we givea round figure. We do not necessarily say what the exact rate of inflationand growth rate would be. My own view is that with all the impulses andencouragement to growth given in this budget, the economy will pick up andperform better than the last few years.

Q: By about a percentage point?
A: As I said, I will not hazard a guess.

Q: Your reforms agenda suggests a continuity with past reform. Where isthe difference?
A: Well, in this way: I have always said that the first generation ofreforms were the easier ones. We could do it more or less throughadministrative orders. The second generation invariably involveslegislation, and they are the more difficult areas of reform, which havebeen subverted and avoided in the earlier phase of reforms. In my firstthree years, I carried forward the work which was initiated by mypredecessors, whether it is the replacement of FERA with FEMA, or bringingin the IRDA Bill, carrying forward the liberalisation of banking and foreignexchange markets. There are three or four critical issues for secondgeneration reforms in which nothing had been done, like administered pricemechanism, labour market reforms, dereservation of the small sector,interest rates. In this budget I have given a very clear direction anddeclaration of government policy in a timebound manner.

Q: Your labour market reform is the beginning of a so-called exit policy,right?
A: You can say that. We are raising the limit from 100 employees to 1,000.To safeguard the interest of employees, we are raising the compensation, theseparation allowance, from 15 days to 45 days' salary a month. The moresubstantial reform is in the Contract Labour Act which, as it exists today,is a hindrance to the creation of employment opportunities.

Q: On disinvestment, last year you targeted Rs 10,000 crore but raisedonly Rs 2,500 crore. With all this controversy on Balco do you really feelall this programme on privatisation is going forward?
A: I see it going forward. I would like to see it going forward. I don'tthink there is anything in the views of the opposition which would hold usback. I am not talking about the left parties which have an ideologicaldifference. I can understand their point of view. I cannot understand theCongress point of view.

Q: So the government will stick to the agenda and go ahead?
A: I wouldn't have talked about privatisation, I would not take on thisfigure in my budget if I was not convinced.

Q: On customs, you said that you would go to "East Asian" levels.
A: I am not targeting an absolutely identical rate with each one of them. Italked of the minimum number of rates. We have four at the moment. Ideallythere could be two, I don't know. I will ask my expert group to give meadvise on this. But I am talking about the peak rate of 20 per cent, therewill be one or two rates below this, so the average, the mean will be muchlower than the peak.

Q: This year you have targeted a fiscal deficit of 4.7 per cent, but notarget of fiscal deficit for the next two three years?
A: The government has already committed itself for those targets in the FRB.Whether I say it upfront in the budget speech or not, we are bound by whatwe have said in the FRB. So the idea is that in the medium term i.e 2005 weshould be able to down up to 2 per cent of fiscal deficit.

Q: On customs, have you finished the exercise for moving from QRs tofinancial controls in the area of tariff? Is there an agenda which you havepursue before April 1, 2001?
A: There is agenda which the commerce minister will come out with when hecomes with the Exim policy. As far as the tariffs are concerned, let me saythat it was our feeling that 35 per cent peak rate is a safe rate and wereally do not need to hike it, except for some individual products orcommodities. For instance, in the case of edible oils I have raised it and Ihave also mentioned the already high rates in various other products andcommodities. Wherever there is need for additional protection, we areproviding it. That will continue to be our policy. But a general hike inimport tariff rates I don't think was warranted.

Q: The markets reacted positively to your budget. Were yousurprised?
A: Well, not really. There are things in the budget which should evokepositive reaction from the market. There are things in the budget whichshould evoke positive reaction from other sections and therefore I ampleased with this. But if the market was down, I wouldn't really bebothered.

Q: Do you see a danger in your budget being interpreted as pro-market,pro-business and tough on the organised sector?
A: I have tried to reduce the burden of expenditure on the government. Ihave tried to do whatever was needed for growth. Not for one industrialistor for one industry. What is good for the economy is what I have done. Thesecond is that I have done a great deal in this budget for the unorganisedsector i.e. the rural sector. I am happy that I have been able to do thatbecause that is where the people of India live and if my budget is able toprovide the growth impulses which are needed, then I would consider that allthe hard work that my team and I have put intimately in this budget has beenworthwhile.

Q: Finally, what would you have still liked to do which you could not doeither because of constraints of a coalition or because of fiscalconstraints?
A: Perhaps I would have liked to restrain expenditure a little more. What wecan get out of taxes is limited. I have, over the last two months, had anumber of fantastic suggestions about revenue raising but they don't work.I had been able to control expenditure within this year and will keep severecontrol next year. Perhaps more could be done on the expenditure front.