Budget 2012-13: On the right track to growth, says Fin Min panel

Below is the edited transcript of the interview. Also watch the accompanying videos.

Q: Mr. Gujral I want to start by asking you while the Finance Minister has put forward his thought’s on where he would like to cap subsidies at 2% of GDP, he is talked about bringing the fiscal deficit down from 5.9% to 5.1%. The question that everybody is asking is how? How is this, a credible number because you haven’t articulated how you intend to prune down subsidies?

Gujral: If you are posing the question as to how the fiscal deficit would be reduced from 5.9% to 5.1%, the answer is very simple. There has been an endeavor to raise the indirect taxes; we do hope to raise Rs 46000 crore from indirect taxes, all from customs, central excise, and service tax as well as from the CESS. There is a give away of close to about Rs 5000 crore on the direct taxes, which gives us about Rs 41000 crore. In addition, in the current year where we had negligible disinvestment of about Rs 12000 crore, in the next year, we have put a figure of Rs 30000 crore where again we are being very realistic, if anything we maybe marginally pessimistic. Auction of spectrum, where spectrum is available from different quarters, not just what is as per the Supreme Court decision, but also what is available from INB or what is vacated by some other sector, that is Rs 40000.

Q: The reason people don’t seem to believe these numbers is for instance lets just take the case as far as oil subsidies is concerned. You have budgeted for Rs 43000 crore in FY13, that’s lower than what you budgeted last year. Last year, you saw an increase of what you had estimated by Rs 45000 crore and crude was at USD 90. Today crude is at USD 125, you have only budgeted at Rs 115?

Gujral: That’s not correct. Last year, budgeted figure was lower; the fact is during the year in the month of June the government had foregone indirect revenue to the tune of Rs 48000 crore in a year on account of the custom duties on petroleum, oil and all the products, as well as crude. In the current year, what the FM has said is that the food subsidy shall be taken care of 100%. The other subsidies shall be, to an extent, born by the economy. Now clearly, you have to read beyond that, that it is not just through the Budget that the subsidy on the petroleum price products is going to be capped. There will be certain other measures which would be taken on an administrative aspect.

Q: Finance Minister talked about going to 50 districts- that’s the outline that he has actually talked about in the Budget. But we are talking about much larger problem. How will the 2% cap be maintained in subsidies?

Gopalan: It’s a mix of everything. First, there is a commitment to retain the total subsidy below 2% of GDP. If you do the math, you will find it is about 1.9% under the numbers. But this is overall subsidy of 2%. We didn’t say the subsidy can be changed. To achieve the 2% we will do everything to ensure that it stays at 2%, except that food subsidy is something which we need to very carefully look at because of the malnutrition issue which we are facing.

To do this, the Finance Minister has said very clearly, food subsidy is very crucial because the malnutrition issue has to be addressed and he also says that it should not be done in such a way that it affects the macro economic situation of the country. That means that lot of political decisions will have to be taken. So the commitment is 2%, not beyond. That commitment will be maintained.

Q: But there were several commitments that were made in last year’s budget including the fiscal deficit which you didn’t come with on?

Gopalan: Last year, we were stumped by the fact that the oil prices remained high throughout the year. It never happened in the past. If you look at it in the past it always went up, but it always came down. So that was the assumption everybody would make.

Q: You are still working on the assumption that crude will stay at USD 115 even though it’s at USD 126 today?

Gopalan: USD 126 is because of the Iran situation, and I can tell you that there are people like Saudi Arabia who are willing to have excess capacity, they are willing to produce more which they will do and it is not in the interest of any other countries, even for Saudi Arabia to have the prices go up then there will be switch over to alternate things and alternate decisions will be made. So the point remains that world recognizes that this is perhaps the price to stay for sometime. USD 115 is the price to stay for some time to come and therefore people feel that this is what the equilibrium price will come about. Remember that Rs 49,000 crore was made last year and it continues this year.