Budget 2014: It is not the end, but start of the journey, says Jaitley

Q: Let me start by asking you, you have laid out the difficulties that the economy is faced with, you have laid out how you find that your hands are tied, is this the best that you could have done? If I were to ask you to rate your own Budget, we have had everybody else rating it but do you believe that this is the best you could have done?

A: I am not getting into this rating exercise because I have to run an institution and a system. The others will only have to participate in a television programme. There is a difference between the two.

I was faced with a situation where the economy wasn’t looking the very best, people were losing confidence in the Indian economy, they were not willing to invest in India, Indian investors were flying out of India and looking at other options. Your tax system was being condemned, your infrastructure was at a standstill, your manufacturing growth was in the negative, your growth rates were low, your tax revenues weren’t buoyant enough and I had 45 days to bring the Budget. Therefore, in 45 days I had to prioritise my priorities.

This is not the end of my journey, this is the beginning and therefore when I start this journey, I must be clear about the seven-eight big things that I want to do. A lot of it was clearing up the mess left by the earlier government. There were decisions they were not taking, some of those decisions were simpler decisions, there were matters which they had complicated. So I had to untie the knots in those matters. Therefore, I have spent the last 45 days - I had only two advantages over them. The first was a major advantage that my party has a majority in Lok Sabha on its own. The second – internationally, the investors were giving us a second chance. They have started looking back at India and therefore we have to respond. Therefore, I had to lay down an initial roadmap which is directional. Other steps will follow in that direction. Then I had to come out with some answers but the direction of each one of those answers has to be that we want to grow, we are creating a conducive environment to grow, we are not only opening our doors, there is enough scope for doing business and we are easing that scope. That is the message I wanted to give to everyone.

At the same time, I have a large section of Indian people below poverty line, weaker sections, we have to be concerned about that. I have to be concerned about the burden on the average taxpayer. Therefore, I had various issues to address.

Within this time available of 45 days, some of those issues I have addressed, the others I will certainly take care of in the months and years to come.

Q: I understand that this is only the first step that you are taking towards a process of economic repair and then revival. But let me ask you about what seems to be the disappointment as far as this Budget is concerned. Let me quote to you what Fitch rating agency and Moody’s are saying. Fitch says, ‘we are unsure how the fiscal deficit target can be achieved without further revenue strengthening or expenditure saving measures.’Moody’s says we are not sure how they will be able to achieve this fiscal deficit target, tax buoyancy at this point in time is not guaranteed given the state of the recovery.’You have in the past questioned the UPA’s fiscal deficit number and the credibility of that number. Do you believe that you are going to be able to achieve the fiscal consolidation roadmap that you have set out? You are sticking to 4.1 percent, you have said it is a daunting challenge, 3.6 and then 3 percent?

A: Please measure each one of my words. I had an option to get into a slanging match with the earlier government. Start questioning the credibility of India’s economic data and I start questioning everything that the previous government has done, create panic in the market and therefore allow the markets to tumble and people lose faith in the very accounting of the Indian system. I didn’t want to choose that course.

The issue is not a conflict between me and the previous government. I have no problem with them today, we have won the election, they have lost, we will now face them after five years.

Today I am concerned with a situation where I have to beat the challenges which confront me. Therefore my challenge is not that I must talk my opponent down so I didn’t go on that course.

On the contrary I said these are the steps I am taking to revive growth, these are some of the steps, they are only directional. My predecessor has laid down a fiscal deficit figure for this year of 4.1 percent, it is very challenging. But one fails only when one stops trying and therefore I have accepted that figure as a challenge.

I will raise resources, there are only two ways I can tackle that fiscal deficit. I can cut down expenditure as the UPA government did or I can generate more resources. I can up the revenues, generate more non-revenue resources. My preferred cost is the second cost and therefore I am going to in the first instance rely on the second cost. I therefore take steps for manufacturing, I stabilise taxation decisions, I stabilise certain decisions with regard to infrastructure, I start looking at cities, I start looking at real estate and I start looking at all these areas. And therefore what the rating agencies have said, how will you achieve this roadmap? Well if I go back to 5.6 to 5.9 percent in the very first year, which is a challenging year, and thereafter I move further upwards, that is my preferred course.

Now it is easy to talk down any course but those who are apprehensive must find faults with the roadmap that I have given to myself. The roadmap is obviously challenging. The previous government had created roadblocks for itself so my first task was to remove the roadblocks. It is only then that I will be allowed the monetary traffic to flow on those roads. So I have followed a particular roadmap, I am quite willing to say that I tried my best and I have achieved so much and that is my direction. So I will achieve something more in the next year.

Q: As you have pointed out that your preferred route is economic expansion as oppose to squeezing out expenditure even further, are you betting on non-tax revenue cushion, the disinvestment proceeds in a big way – you budgeted Rs 43,425 crore from disinvestment, another Rs 15,000 from PSU stake sales and another Rs 27,815 from public sector undertaking (PSU) dividends. Do you believe that you can significantly better this number and that is giving you the cushion?

A: I will be candid with you. If you see my speech – I deliberately didn’t have paragraph after paragraph for disinvestment. I didn’t want my friends from the Left or some other group to just walk into the well and disrupt the speech but in my Budget the documents I have candidly mentioned it and I have not adopted a course for the present which is different from the United Progressive Alliance (UPA). They decided a certain set of PSUs and with a market at 25,000-26,000 Sensex - this is the ideal time to disinvest. I am looking at those PSUs and in accordance with the decision of the previous government I will move ahead of that course and I think in the present stage it is possible to realise certain revenues from them and that is why it is not only PSU disinvestment, bank capitalisation, of course that money doesn’t come to me, it goes to the bank itself. Therefore, while they retain their public sector character, they are going to use this enormous resource over the next three-four years. I have laid down 2018 as a deadline for them for greater financial inclusion, the banks will rollout more branches, give more money to people generate more economic activity and instead of government’s holding 80 percent – if this 80 became 60, the bank will still be the same with greater autonomy, but the bank will have much more money for its own economic activities and greater inclusion.

Q: I know you cannot go below 51 percent and that is the stated objective and the position as far as this government is concerned but the big idea as far as bank recapitalisation was concerned of the setting up of this holding company, is that something that you could maybe look at down the line or do you believe that is off the table for now?

A: No, nothing is off the table. I am looking at everything but I am not in a position to comment. I have spent 45 days in this office and these 45 days I have been busy listening to people, interacting with them and coming out with these proposals - obviously as I said this is the beginning and therefore all these ideas we look at and this is going to be directional as far as those ideas are concerned.

Q: What is the threshold that you believe you can see public sector banks move towards, 51 percent is sacrosanct, it cannot be below that, what is the level that you would be comfortable with?

A: It could be 51 percent for some, it could be 60, it could be 55, that is a decision which the banks will take. Of course the department of financial services would be in consultation with them but I want that over the next three-four years, a lot of money from common citizens to be invested in these banks.

If you see, I have phrased it in a manner. It is today, the people of India who own these shares through the government, they will hold a small section of it directly themselves. The character remains the same, so my critics don’t have much of a ground to challenge me on but at the same time, I have brought in savings of people into the banking system and banks have a lot of money to expand themselves. I think in the banking sector, it is a very important reform.

_PAGEBREAK_

Q: One more question on banks before I move on to another issue, as far as new bank licenses are concerned, has there been any conversation with RBI on when we could see the next round of licenses being given and what is your position in terms of corporate houses being given bank licenses?

A: I am still to look at this matter in detail because I have spent my last one and a half months on working on these proposals but after I discuss it with the RBI and within the ministry only then I am going to make a statement on that.

Q: What about the expenditure control? The disappointment is that there isn’t enough that’s actually happened on the expenditure management side. You prefer the route of economic expansion. However on the expenditure management you have decided to setup an Expenditure Management Commission.

A: I have no authority to rate the rating agencies. I will only tell them to be a little more realistic. In 66-67 years, India has not been able to find an answer to subsidies and they expected me to find it in 45 days. As far as subsidies are concerned, I will have an Expenditure Management Commission which will look into various expenditures including subsidies. It will look at subsidy rationalisation. Therefore, a part of our subsidy problem – oil is already market related, diesel hopefully in a few months will become market related.

Q: What about LPG and Kerosene?

A: There are issues, for Kerosene particularly you have to find an answer. Kerosene is used by the most deserving and the least deserving at the same time. So, how do you dissect the two? Do you go in for some kind of a system to weed out the undeserving? The Prime Minister himself last week took a meeting which lasted a couple of hours looking at various options including an amending form of Aadhaar for direct benefit transfer. We have just taken over. So, the rating agencies should also appreciate that these are areas in which we will require some more time to move.

Q: What would be the ideal cap as far as subsidies are concerned? Currently about 2 percent of GDP, Vote on Account 1.9 percent of GDP, what kind of cap would you like to work with?

A: I am not going to tie myself into figures. Don’t forget there are two aspects of subsidies. There is a very large section of India which still depends on these subsidies. All subsidies are not undeserving. Subsidies in general can become un-quantified, they can relate to an unidentifiable section of people. However, there are some people who need those subsidies. India still has around 30 percent people below the poverty line. Therefore, it is the responsibility of the state to make sure that trickle down alone won't pull them or pull up alone won't pull them out. You have to have your poverty alleviation schemes which will include schemes for subsidising them.

How do we rationalise them is the real challenge before the government.

Q: Do you believe that the subsidy number, the expenditure on subsidies could look very different once the recommendations of this commission come in which we hope will happen this financial year?

A: I do believe that and I think that should happen. The monies that the government saves will be spend on something again for the development of the economy. That money can go in infrastructure, that money can go in for faster poverty eradication and that money can go in for repayment of debt, you can have 100 options. Today, we are starved as far as our defensive investment is concerned. We can look at all those areas.

Q: As far as the Food Security Act is concerned, there has been a deferral of rollout for another three months at least. So our assumption and this is what the secretaries also confirmed is that you may have some savings on that front?

A: Realistic you could have because the states have not got the list of eligible people and therefore, it may not reach out to everybody unless those eligible lists are there.

Q: You have also spoken about reviewing in consultation with state governments the Food Security Act. Could we see a very different Food Security Act post this process?

A: There is a little challenge that exists in a democratic system. It is the responsibility of a government to take the country on a particular track. Therefore, once one mainstream party when in power goes on a particular track, reversal of those decisions is far more complicated. If you were writing on fresh slate you could have written otherwise. However, once you are undoing what somebody has done the complications are far more. Therefore, I don’t want to boast off my ability to change everything. You will have the same provision where the position with Land Acquisition Act.

Q: You don't believe that we could see significant changes to the Land Acquisition Act either?

A: I am not saying that. In fact at the meeting of the state finance ministers and the revenue ministers with Gadkari, cutting across party line everybody has expressed the problem with the act. Therefore, whether it is Left or Congress or a third front government, everybody in the state is saying what do I do, where do I get land from. You require land for infrastructure, you require land for affordable housing, you require land for townships.

Q: Is amending the Land Acquisition Act going to be a priority for you?

A: You will have various options. If you ask me is that overall all possible? It’s far more challenging, no. Can some more exemptions be added? Reforms are an art of the possible, reforms are not the art of confrontation.

Q: Speaking of undoing problems that you have had to inherit and the big hope was, the big expectation was that you would repeal the retrospective tax law. The decision to hold back on that, while you have very clearly articulated your intent to provide a stable tax regime, to provide a stable policy regime - the decision not to repeal the law is it because of the kind of political confrontation that you expect on account of that or the fear that you would be seen as selling after the foreign investor lobby?

A: I don’t think that issue arises. I would like to believe that in the outgoing government, the leaders of the government, the Prime Minister, the Finance Minister may have been uncomfortable with this law but they didn’t have political space to move further. We did have the political space and therefore when I looked at this taxation administration issue, the Prime Minister himself has spent hours on this issue in discussing it with me. Just appreciate in totality, in a short span of 45 days what we have done. Does the parliament have the power to enact retrospectively? Of course it does. Will this government also enact laws retrospectively creating fresh liabilities? In all likelihood we are not going to do that; I am fairly categorical about it. Are we going to issue fresh notices on the basis of 2012 act? Doesn’t look like and if some opportunity arises because time has passed by, we will get the Central Board of Direct Taxes (CBDT) to look into it rather than allow the accessing officers to get into this exercise.

What do I do that remains the only problem with litigations which are pending? Do I repeal everything and nullify those litigations and create a new situation or do I allow the litigations to run their course? I allow the amendment to proceed prospectively and whatever the litigations decide, whether its arbitration or it’s a court verdict, so be it. Now, these are also possible ways of resolving a dispute, a litigation is a very civilised way of resolving a dispute and therefore we have been clear about all the four eventualities.

Now, I haven’t stopped with that. I have gone a step further in a short period of one and a half month, we have set up an advanced ruling authority for domestic investment above a threshold. I then go into details of all these litigations pending with regard to transfer pricing and lay down specific guidelines, amend the law so that we bring those litigations to an end, so that no uncertainty in India remains. This is a huge step forward as far as tax administration in this country is concerned. The only path which remains undecided is what do you do with past litigations? Let the litigations provide the answer.

_PAGEBREAK_

Q: How confident are you that we are going to see a conclusion of the Vodafone conciliation process soon?

A: I have personally not been commenting on that case and you know the reasons for it and therefore I would rather not comment on it.

Q: Let me move on and ask you about the Goods and Services Tax (GST) because that could easily add at least another percentage to the GDP. You have talked about how the debate must end as far as GST is concerned and you have also broadly given a timeline of being able to conclude the consultation process within the year. Do you feel confident that April 1, 2015 is the GST timeline?

A: I have had two meetings with state finance ministers. The impression that I get is they have almost reconciled provided we pay them the CST compensation. Like the retrospective tax this is another problem I have inherited. Since 2010, the states have not been paid. You didn't keep the promises, I don’t have money to pay now. So, I have to now generate more money over the next few months in order to first pay the states and after I have paid the states to find an answer to the problem.

In the empowered committee there is a broad consensus, I am willing to go with that consensus. It may not be the utmost that I want, it may not be ideal but it is reasonably good. I can make that a starting point.

There are two other states which have raised certain other issues. So, I am confident of overcoming it because both are NDA states and one of them is Gujarat. Therefore for me to resolve issues with them is quite reasonably possible.

Q: April 1, 2015 you believe we will see a GST rollout?

A: I am going to make an effort and it is a top priority item for me.

Q: Not the Direct Taxes Code (DTC) because that you said is also up for review. The previous bill has lapsed. The economic survey laid out a roadmap as far as DTC is concerned. Would you go with that or would you like to see significant changes from the current avatar?

A: I have looked at DTC extensively when I was in opposition. I have to take a fresh look now. Last 45 days I have not had time. Therefore once I look into it, I meet the stake holders, I will take a view. I am not rigid about anything. I am willing to make a fresh beginning. If there are good points in the DTC so be it.

Q: So DTC, by when do you expect this review process to conclude?

A: No, it is yet to start and therefore once it starts it is only then that I will be able to comment.

Q: You have decided to hike the FDI cap both in insurance as well as defense, you have the political strength and the political capital to be much bolder on both these fronts, the decision to hold back; not political courage, lack of political courage or do you want to take a calibrated approach?

A: No, we have taken an approach which suits India. Just hiking it indefinitely may not suit us for the moment and I have taken an approach which I am able to convince the Indian decision makers to accept. Today, the Vajpayee government made it 26 percent in defense, we made it 49 percent. The Congress government went on indefinitely buying from foreign players, but they wouldn’t set up a majority company in India. They had a debate and the defense minister opposed it and finally they couldn’t do anything about it. So, 49 percent I have come out with Indian control, it is a calculated decision and the Indian political system will find it easier to accept that decision.

Q: There could be no review on account of transfer of technology with CCS approval on a case by case basis?

A: When it comes up now for formalising the guidelines in the cabinet these are issues which we will take up but the policy stands announced.

Q: On multi-brand retail you haven’t rescinded the policy just yet; is that going to be something that you take forward, I believe the legal opinion at this point in time says that it is not that easy to rescind, so will you leave multi-brand policy?

A: We will decide. I can only tell you on this issue. It is a lesson to all of us, including the previous government. The two lessons are, in the first instance when you reform and that is why I have said out of the possible, go in for areas where you can achieve something. If you go in for a traffic jam on day one, if you take that road you will never move further. The United Progressive Alliance (UPA) had ten options on FDI. They chose the most complicated and got stalled somewhere.

Secondly, if you bulldoze on the strength of parliamentary majority you can take a decision, you can never implement it and in multi-brand retail it is the Centre, it is the states, it is the municipalities - they all step in and somebody is in power somewhere or the other and therefore for the UPA government to take that decision and then say well I am throwing my hands up people have invested in this country and are now going back kind of a situation I would rather have waited for a proper consensus before such a decision comes.

Q: Now that it is a policy, what is your personal opinion on what to do with it?

A: I don’t think India is prepared for this policy to work at the moment.

Q: You are not planning to rescind it just yet?

A: That is a formal decision, whether we take it or not that is a separate matter. However, I think for multi-brand retail decision makers must learn a lesson.

Q: I want to ask you one specific question as far as the mutual fund industry is concerned and the feedback coming in from the market is that on account of raising of the long-term capital gains from 10 percent to 20 percent you have actually dealt a pretty severe blow to the mutual fund industry. Is there any scope or possibility to review this decision?

A: That doesn’t look like because the data available with the CBDT shows that as far as the mutual fund industry was concerned the tax relief was given to small investors. This was being used by major corporate players to hedge their investments and make money out of that. That was not the intent. A large amount of tax sacrifice was going on which was not intended to be given to large corporates and therefore we decided to hike it.

Q: So, no review of this decision?

A: Doesn’t look like.

Q: You said this is just the beginning of your journey as far as the reform agenda is concerned, what more can we expect? Directionally you have read out the roadmap for economic revival, what more should we expect from you over the next 6-8 months?

A: Neither the Prime Minister nor I are dogmatic about these issues. The direction is clear and once you move in that direction …..

Q: What are you most worried about at this point in time? Of failing monsoon, global uncertainty, worry in Iraq, what are you most concerned about?

A: I am concerned about each one of these. If these two adversities, Iraq and monsoon, these clouds go off and there is a certain certainty of a more peaceful environment or a better monsoon this year then we will be able to move ahead on the road that we have decided.

Q: If the drought situation worsens and there is an expectation of a drought in large parts of the country, especially in western India, would you be faced with the tough dilemma, the tough decision of perhaps another debt wavier for the agricultural sector? Do you believe that you have the stomach for that?

A: I don’t want to make these sensational statements. We will wait to cross that bridge if it comes, I hope it doesn’t come.

Q: When you took office you said you are going to be in the defense ministry only for two weeks or three weeks. It has been much more than that, what is the road ahead as far as the defense ministry is concerned? Will you continue to hold both offices?

A: It is a good question but the Prime Minister alone knows the answer, I don’t.