Budget focus likely on fiscal consolidation, mkt confidence

Excerpts from India Business Hour on CNBC-TV18 Watch the full show »

FICCI's secretary general, Rajiv Kumar spoke to CNBC-TV18 after his meeting with the finance ministry officials about what economists can finally expect out of Budget 2012. He says that the focus is likely to be on fiscal consolidation and bringing back investor confidence to the market.

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

Q: Economists want a big bold breakthrough budget and that's the message that you communicated to the Finance Minister. But what was the indication that you got from finance ministry officials about what the overarching theme could be as far as budget 2012 is concerned?

A: I think that the overall theme would be fiscal consolidation because I think the Finance Minister himself in a sense indicated that he is aware of the rise in fiscal deficit and the impact that it is having, both on managing inflation and on investors expectations. So, I think the theme would be one, fiscal consolidation and two, to restore the investor's confidence in India and India growth story. Several economists brought this to the fore that the investment cycle is down while consumption has remained up. It cannot continue to remain up unless there is a greater investment, and there is complete unanimity on this. I think this point is well accepted by the ministry officials that this budget will have to focus on restoring the investor's confidence and bring back the India growth story on track.

Q: RBI had also said in its credit policy on the 24th January that the government must do something to spur the investment cycle. What was the indication that you got because there has been a lot of speculation that the government will focus on fast tracking approvals for big ticket infra projects, what was the suggestion given to the finance ministry and what was the indication that you got on what could really be feasible?

A: I am not in a position to say what they said because this is as the minister emphasized, his was a listening brief today, and he did not indicate or react to our demands. But I think the overall, the sentiment is that this is a point well taken and that the infrastructure deficit, especially in the power sector which has emerged and which is where we have asked for the clause Section 81A - relief under for the tax, which ended on the 31st of March last year, to be extended for another six years, I think that point went home that the emerging power crisis in the country requires both attracting investment into that sector, and also in the coal sector that the gestation period of approvals be reduced. May be even more competition introduced in the sector. That was the refrain that was followed by several economists.

Q: I know it's unfair to ask you about details, but what was the indication that you got in terms of coalition compulsions and the coalition's dharma and how much of that is likely to weigh on the decision making this time around?

A: You made this point very well because there is a clear indication that the Finance Minister did not have the numbers in the parliament to be able to push through a series of reforms as he would have been able to do, for example in the 80s, when he presided over this ministry in Rajiv Gandhi's days. I think that signal was given to us quite clearly that the coalition dharma that we have today and the regional interests which are sometimes quite narrow and which maybe different from the national objectives and national interest, may prevail upon the Finance Minister to not be able to take the sort of steps, which he of a very experience Finance Minister understands very well, but may find himself to be quite constrained in being able to take forward even those measures that he might find are very logical and very necessary at this stage.

Q: Did you get any sense that they would pick up on reforms like multi-brand retail, revive that particular proposal?

A: Frankly, no because there was no response on that. But many of us have emphasized the fact that the Finance Ministry must use the budget as a statement of policy, so that the leadership of economic team comes back to the Finance Ministry as it used to be in the hay days of the reforms in the early 90s. That sort of leadership and coordinated approach is required for investors to regain confidence in government policy making.

Q: We don't yet have clarity on the GST or the DTC role out, was there some indication given to you in terms of incorporating some aspects of either the GST or the DTC within this budget. There has been a lot of speculation that could perhaps happen?

A: One feature which will be incorporated and some work has been already done is to shift to the negative list in the services sector. That is one of the constituents of the GST and I will be very surprised to see if that is not done in this budget. It will give a significant boost to the services tax collections. It may be a useful tool for reducing the deficit in this year to which the finance minister is committed.

Q: At the end of your conversation what is the sense that you get? Should we temper our expectations as far as big bold budget is concerned or do you think it's going to be a constrained one?

A: I will express my wish that it is a big bold budget, but I will be realistic from what I heard and say that you will be better off tempering your expectations.

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