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Mar 07, 2012, 09.19 AM IST | Source: CNBC-TV18

Budget Expectations: Bring back privatization, raise rev, says Rajiv Kumar

Will the Budget carry the Prime Minister's footprint or will it cater to populism? The secretary general of FICCI – Dr Rajiv Kumar discusses these pressing questions with CNBC-TV18's Siddharth Zarabi.

Budget Expectations: Bring back privatization, raise rev, says Rajiv Kumar

A few weeks left for the Budget. What sort of reforms does India need to shake off the gloom and stagnation of the past many months and what might the Finance Minister (FM) be willing to consider at Budget time. Hopes are always high but will they be dashed or will they blossom? Will the Budget carry the Prime Minister’s footprint or will it cater to populism?

The secretary general of FICCI – Dr Rajiv Kumar discusses these pressing questions with CNBC-TV18’s Siddharth Zarabi.

Below is an edited transcript of their interview. Watch the accompanying videos for more.

Q: Do you think the Budget can deliver on moving out of this phase of gloom and despondency? The industry is reacting to what the government is doing, the government is going consistently in a sustained manner after industry which is losing confidence. Can the Budget deliver? Is it up to Pranab Mukherjee to do something about it?

Kumar: The question is not - can the Budget. The question is that the Budget must do this because the fact is private investment in the economy hardly grew at all in 2011-12. In the first half’s growth is 3.5% and the Prime Minister's Economic Advisory Council (PMEAC) is saying that in 2012-13 they expect this to grow at 9%. So a threefold increase in the rate of growth of private investment is what has been contemplated. You cannot achieve that if the sentiment in the private industry remains where it is at the moment.

The finance minister just has to do whatever he can from the election results on March 6 to 16 to lift this sentiment. My fear is that the slight turnaround that we have seen at the beginning of this year in the market, in the rupee appreciating again, in some of the things becoming a little positive could create a sense of complacency that all is well again. It is not that all is well.

Therefore, what I request the finance minister to do is not make this Budget again a statement of accounts of the government but make it a statement of policy intent and to show that there is economic leadership in this government. What the market is looking for, what the private sector is looking for is a sense of leadership and direction in a situation where you seem to appear to be almost rudderless as far as the direction of economic policy is concerned.

Q: There use to be a practice of presenting outcome Budgets which has mysteriously disappeared over the last two-three years?

Kumar: One thing I want to say is what he should not and what he must not do is to give a signal that by allocating resources to new schemes it will enlarge the fiscal deficit and will trap this country and the economy.

Q: Are you talking about the Food Bill?

Kumar: Absolutely, because if that is done then the basic expectation from the Budget moving toward fiscal prudence and reversing the fiscal profligacy that you have will be gone. The markets have given the benefit of doubt to the finance minister and to the government at this point of time and if something like that happens that you get much greater allocations on flagship schemes of this order and you don't trim any of the schemes then I am afraid that would be for me a complete no-no that this Budget should have.

Q: So does that mean the biggest signal that this Budget should provide is a clear cut signal on fiscal consolidation on a prudent government and a prudent government that is not going to throw money at schemes which may not yield results?

Kumar: The strongest signal must be fiscal prudence along with enough growth impetus which will come through structural reforms and not through extra public expenditure because that will not help you. I think that’s the combination that you need today - fiscal prudence along with growth impetus to bring the economy back to a higher growth trajectory.

Q: Mr Jairam Ramesh went after every coal block allocation and effectively set us back by a couple of years. That is what the critics at least said.

Kumar: People will also tell you that Coal India Ltd is sitting on 400 million tonne of environmentally coal cleared reserves.

Q: It takes a Pullock Chatterjee to convene a meeting and set a deadline for FSAs to be signed.

Kumar: But only to convene a meeting. I am afraid that doesn't really just produce the good solution yet, because the output has been stagnating for the last three years. Say for example, the APMC Act, every government officer and political leader knows that the act should be removed to remove the bottleneck from the food prices. At least the UPA led states could have done that; that would include Maharashtra and Delhi which will remove the bottleneck from the largest ministries. So what Mr. Singh is saying is so right that the government continues to not do anything until there is a crisis.

Q: There were states which were willing to go ahead with FDI in retail, states like Punjab which were very willing.

Kumar: Let’s come back to the Budget. What the Budget can do, for example, to get fiscal prudence and growth going; lets say, bring back this word called privatization and raise the revenues especially by hiving off those industries, those companies etc which have neither a strategic implication nor anything to do with the poor or poverty. Air India and Asoka Hotel are prime examples of that. They are both hemorrhaging why don’t we do something, raise revenues from there and also at the same time improve the structural performance of the country.

Q: Because the UPA said that privatization was a very bad word. They even got Call options cancelled.

Kumar: This is exactly what I am saying. Now you got banks upon banks in which you are going to pump in huge amounts of tax payers money to get the capital base up because that is what is required.

Q: We’ll see a further allocation of Rs 15,000-20,000 crore.

Kumar: Why would you need to do that? You can raise it through IPOs by diluting governments share in those banks. So that’s one of the ways. The second thing is that we have been talking about this, this talk about diesel subsidy, all sorts of subsidies that you are talking about. I had suggested to the FM when he met the economists, that it will be very difficult for him to have either remove the diesel subsidy or have dual pricing in diesel.

Why not therefore charge a large upfront levy on diesel cars? Now the argument is that cars only use 10% of the diesel. But it is 10% and that will send a signal that this government is serious about taking steps which it can do politically to achieve fiscal prudence and also give impetus to growth.

Q: And get reforms back on track in terms of at least some announcements, some signals?

Kumar: What the Budget has to do is to break this complacency that 7% rate of growth is in our pocket and that we only need to look after how to spend the revenues that you generate out of a 7% rate of growth. Today, it is 7% but it can always come down. So as everybody has been saying here, what you need is a strong signal from the government that they are interested in growth, growth is important, the economy is struggling at the moment and therefore whatever needs to be done to restore macro stability and investor confidence, sentiment should be done, signals must be given in this Budget. Strong signals to support that and not to give any signals which will show that good economics is not good politics. That’s where I think the Budget needs to be really focused on.

Q: What should the Finance Minister finally tell us on the Budget day?

Kumar: Expand your revenues from direct taxes by plugging the loopholes and improving compliance because a lot can be done especially, for example, the agriculture income. A lot of people declare their income as agriculture, and therefore, get away from paying taxes. Improve the direct tax collection so that you don’t depend so much on indirect taxes. Therefore, you can achieve fiscal prudence, and at the same time, give incentive to the industry to improve investment.

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