Don't blame Pranab Mukherjee for slow growth: Montek

Karan Thapar: Now, I know that you are reluctant to talk about the Vodafone and individual company but you know and as well I know that it has worried investors to the point that George Osborne Timathy has raised it, it is an issue that has worried Vodafone and other investing companies also, let me ask you could the government considerably come to a conclusion that because the Vodafone was adjudicated by the Supreme Court and then upheld for review, that this company will not be affected by the retrospective amendment in the tax law?

Montek Singh Ahluwalia: As I said taxation matters are complex and I should not comment on complex matters particularly when it related to an individual company, but I what I am saying is that the concern that came up was just not because of Vodafone though it is possible that the high profile attention that the Vodafone got complicated everything else. I am talking about other things. Vodafone is an issue that the Finance Ministry will have to handle.

Karan Thapar: One other question, do you think it might be sensible for the government to give assurance to the investors that the retrospective amendment of tax legislation, something that unsettles investors all over the world, will not happen hereafter?

Montek Singh Ahluwalia: Well you know my view is that the restrospective amendment should be very rarest of the things. I do want to say if you talk to any investor they will tell you that we are not the only country that occasionally does something retrospectively. Other tax jurisdiction has done but very rarely.

Karan Thapar: We had 27 such in the last budget, I am told.

Montek Singh Ahluwalia: No, no, but those are related to other things.

Karan Thapar: Dr Rangarajan said to me three weeks ago that just because others have done it and got away with that is no reason for us to try it. We need to think carefully about the future.

Montek Singh Ahluwalia: I agree with that.

Karan Thapar: You agree with that?

Montek Singh Ahluwalia: Yes

Karan Thapar: Alright let's come to the second problem that we face, the fiscal deficit. Last year it came at 5.7%. But do you believe if we have to bring it down to 5.1%, it's absolutely critical that subsidies be cap at 2%?

Montek Singh Ahluwalia: That's correct. That has been the government's policy, that has been the policy of the Finance Ministry, the previous finance minister, the prime minister have said that we must do it, there is no doubt about it.

Karan Thapar: If you are really committed to capping subsidy at 2%, would you accept that Diesel and LPG prices and perhaps kerosene, needs to raised quickly and substantially?

Montek Singh Ahluwalia: You know the view of the Planning Commission and any economist on this is that the Diesel and LPG have to be aligned with global prices. We can keep in mind to subsidies vulnerable individuals certainly kerosene and maybe LPG but otherwise it is not possible to run an economy if you are going to maintain a substantial subsidy on these. Now how you do it, when you do it, in how many steps, these are the issues.

Karan Thapar: But do it you must.

Montek Singh Ahluwalia: In my view, certainly.

Karan Thapar: Now if you are really serious about that 5.1% fiscal deficit target, remember it is predicated upon a growth assumption of 7.6% which many believe is unrealistic.

Montek Singh Ahluwalia: We are not going to get 7.6%.

Karan Thapar: We are not going to get 7.6%?

Montek Singh Ahluwalia: No.

Karan Thapar: You are absolutely clear about that?

Montek Singh Ahluwalia: I am, I mean it is not a forecast that I am making, my view is the best hope we have for the current year given the slowdown that has occur, the economy could grow somewhere around 6.5-7% depending on what happens in the next six months. I don't think 7.5 is possible, we should assume growth will be lower.

Karan Thapar: Alright, you are saying the growth should be somewhere around 6.5-7%, that's half a percentage point or even a full percentage point less than 7.6, in which case if achieving the 5.1% fiscal deficit target is important do you think expenditure has to be cut

Montek Singh Ahluwalia: You know globally this tweaking fiscal deficit target as a rigid fiscal target is not a contemporary fiscal practice.

Karan Thapar: But are you saying you are willing to accept higher fiscal deficit?

Montek Singh Ahluwalia: Let me explain what I am saying, any time a budget is made, a budget is made on the assumption that the growth will be something. Then variations in growth it is assumed will impact the fiscal deficit. If the growth is less than projected in nominal terms the chances are that the fiscal deficit will worsen, if it is more then the chances are…

Karan Thapar: But can still keep the fiscal deficit target even if the growth is less provided you reduce your expenditure.

Montek Singh Ahluwalia: I am not sure that is recommended by the way, most people let us determine what is the structural fiscal deficit that we want and then if the growth is less you should accept the deterioration, That's what we are doing around the world.

Karan Thapar: So you are saying there is no argument for cutting expenditure because in the last budget you cut the expenditure by 22%, grows borrowing requirement from Rs 5.1 lakh to Rs 5.7 lakh, you are saying there is no argument to cut the expenditure.

Montek Singh Ahluwalia: I am saying we should continue with the 5.1% fiscal deficit target defined as the structural deficit target and if the growth is less than that we should accept that the fiscal deficit in the current might worsen and in the next year's budget we'll have to set a more appropriate target.