CNBC-TV18 Exclusive: FM says budget is a calculated risk

The Budget is a calculated risk to boost growth, said Finance Minister Pranab Mukherkjee in an exlusive interview to CNBC-TV18 soon after the Budget.

Speaking to CNBC-TV18’s Karan Thapar, he said that while fiscal deficit was indeed worrisome, the government had growth in mind. But he was quick to add that the UPA government aimed to bring down the fiscal deficit to 4 per cent in the next 2 years. In his budget speech earlier today, Mukherjee had pointed out that fiscal accommodation had led to an increase in fiscal deficit from 2.7 per cent in 2007-08 to 6.2 per cent of GDP in 2008-09.

Here is a verbatim transcript of the exclusive interview with Pranab Mukherkjee on CNBC-TV18. Also watch the accompanying video.
Q: Let us start with the fiscal deficit. You announced that it would be 6.8%, which is sizably more than the 5.5% you announced at the time of the interim budget or even the estimated 6.4% after one took into account your excise duty and service tax cut. Does 6.8% worry you?

A: Of course it is worrisome. But I had to take the calculated risk because I wanted to have higher growth and domestic demand driven growth. So, therefore I had to inject substantial quantum of money in the system. You have noticed keeping in view that my revenues have gone down from the presentation of the interim budget today about Rs 26,000 crore, non-planned expenditure have increased another Rs 23,000 crore but despite that I have given Rs 61,000 crore-Rs 40,000 crore straight to the central plan and giving Rs 21,000 crore by enhancing the borrowing power of the states to the economy. This is done so that the plan development can get additional Rs 61,000 crore between interim budget and this budget.

Q: But infact because you have enhanced this capacity of the states to borrow, the total fiscal deficit of the center and the state goes up to 10.8% and experts say that if you add to that off-budget items then the full fiscal deficit could be perilously close to 12.5% maybe even touching 13%?

A: That is why I am saying that it is worrisome but I had to take that calculated risk in the sense that if we can generate the come back to the higher growth path because the fiscal stimulus, which we provided to the extent of Rs 186,000 crore that has helped to rest our gross domestic product (GDP) at 6.7% for the year 2008-2009 which was projected at some point of time will go down below 5%. Therefore, I am hoping that with this and monsoon being favourable, it will be possible for us to have around 7% growth. But I do agree that this level of borrowing and this level of fiscal deficit cannot be sustained for a longer period. Sooner than later it shall have to come to come back to the fiscal prudence.

Q: Could you not in this budget itself had indicated a roadmap for bring it down and for bringing yourself under the discipline of the FRBM Act? That would have given people much greater assurance that you are in control of the deficit. At the moment they are a bit scared whether you can control it or not.

A: This was not possible during this budget because choice was which route I will take, would I continue to provide stimulus or not? This is keeping in view that there is no sign of the revival of economy in North America and Europe and some of the giants in Asia where upto now there are no visible signs available. I had to depend mainly on the domestic sectors and keeping that in view I thought that in the social sectors I shall have to step up and my approach of injecting more money in the system particularly for developmental expenditure from Rs 243,000 crore to step it up Rs 325,000 crore is a quantum jump but we had to do it to comeback to the higher growth projection.

Q: But I gather that there is in fact a document that you tabled along with the budget on the floor of the house today which does sketch out even if only vaguely a route map of bringing down the fiscal deficit. I heard your Finance Secretary today on television explaining that your hope is to bring it down by 1.5% next year and another 1.5%?

A: Another 1%, so 4% would be in that 2011-12 and 5.5% would be in 2010-11. 

Q: But instead of leaving that message to the document that you tabled on the floor of the house which as yet not public except for the fact that you and the Finance Secretary have reveled it could you not have put that message into the budget itself, it would have given greater assurance and perhaps the tanking of the stock market wouldn’t have had happened?

A: I don’t know whether it would have been included in that statement. But it is very much budget document because this is legal obligation of the finance minister as to introduce the Finance Bill so also to raise these three statements to place these three statements on the house. I did it exactly as the second item after I commenced the budget for the actual steps to the House.

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