Will wait for full and legitimate Budget in July: Gokarn

Joining in the discussion, JD (U) Member of Parliament Jay Panda, however, insisted that chances of a coalition government cannot be ruled out. "Many are still looking for alternatives to the BJP and Congress," Panda said, adding one can expect strong governance from the Third Front if it comes to power.

Below is the verbatim transcript of Jay Panda and Subir Gokarn's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Sonia: What is the agenda that you would like the new government, whichever government comes to power to set as far as the fiscal situation is concerned? What are the one-two or three rules that you would like the new government to set first up?

Gokarn: Speaking specifically about the fiscal situation, I think that three issues, which we need to get to grips with very quickly. One is clearly what has been talked about which is the overall size of the fiscal deficit and the priority on containing it, bringing it back to what the Fiscal Responsibility and Budget Management (FRBM) roadmap from 2003 to 2008 had laid out, which is essentially trying to bring the revenue deficit to zero and using whatever you borrow to create assets. I think that is a very important restructuring that we need to see.

But within the revenue deficit, the problem over the last few years has been subsidies and we have to find a way to contain subsidies. We had some reference in the budget of 2012 to new FRBM which would have an explicit cap on subsidies and that is a good way to go. That locks in governments regardless of political orientation and I think we need to move back to this more formal system of fiscal rules to try and get some predictability and some commitment into place. Very important element in this is the goods and services tax (GST) - I am very much in favour of the GST and I think the benefits we saw from the value added tax (VAT) at the state level, which is a very sharp increase in revenue collection because of higher compliance and that is the important thing.

Those will flow to the overall fiscal system, both center and states through a GST rule and that is very important and I get back to my first point, which is the most important. In 2008, we had capital spending as a share of government expenditure at around 23 percent. Spending almost a quarter of its total spend on asset formation. Today that number has gone down to 11-12 somewhere thereabouts. So the government is spending way too much on consumption and way too little on asset formation. If we don’t get that balance right, we are compromising hugely on the kind of infrastructure requirements that we need to fulfill in order to sustain a higher rate of growth.

Latha: First up, what are the chances of the third front? Until now, how many parties do you think can coalesce post elections?

Panda: I think you need to keep in mind that every government for the last 25 years has been a coalition government and the next government is also without a doubt going to be a coalition government. What we have seen in the past two decades of getting used to coalition government is that it takes 20 parties give or take to form a government. Sometimes I think an argument is made which is quite specious that a third front government cannot provide the kind of governance that India requires.

If you remember, P Chidambaram as part of the third front government in 1996-1997 presented what was called the Dream Budget which took reforms forward. As far as the chances are concerned, I don’t want to speculate, I think I will leave that to pollsters and astrologers and let us see how things turn out.

Let us clearly understand that there are major challenges. No matter who is in-charge of the government next year or after this election. Just a bit earlier I was listening to your panel discussion where we are talking about sort of accounting jugglery to show large chunks of expenditure, which ought to be booked this year to be booked that year and then on top of that, the sort of very lofty sounding target of bringing down the fiscal from 4.8 to 4.2 is going to be a huge challenge for any government.

Latha: Let me tell you it is not as if the opposition parties have been very kind or very responsible when the government tried to become fiscally responsible. Ever so happen in the first four years of the United Progressive Alliance-II (UPA) government when prices of diesel or any of the petroleum products were raised. A lot of the opposition parties which are today part of the third front or will be part of the third front have opposed it. These fiscally responsible steps of 50 paise increase in diesel price got taken only lately. Earlier any two-three price rise in diesel was opposed tooth and nail that is exactly what I want to come to. If the third front comes in, would all your coalition partners be agreeable for a market price of diesel and curbing the subsidized liquefied petroleum gas (LPG) to maybe 9-10 cylinders. Do you think you will give agreement on that?

Panda: First of all let us see the context in the correct perspective. You talked about the opposition creating hurdles when the government gave the right signals. But I think all your viewers know that right throughout the entire tenure of this government, it has been at war with itself. If the government ever itself gave a consistent signal, that would have been the starting point for trying to bring around people in the opposition. But even within these last few months, on the one hand you have had P Chidambaram cracking down very hard on expenditure to try and achieve the 4.8 percent number, on the other hand you have the ruling party announcing largest after largest - you just mentioned LPG - where is the consistency in the government message? You cannot expect the opposition to cooperate with you if you yourself are not giving a consistent message.

Coming to the third front, if at all it were to happen -- let us understand, today what we have is a block of parties cooperating inside parliament. Whether a third front will happen, how it will happen, I think we will have to leave it to the voters. If it were to happen, let us understand what is one of the biggest strengths. You would likely have a respectable person as finance minister (FM) who would not be burdened with extra constitutional authorities suddenly announcing whimsically policy decisions outside of parliament and outside of government.

Sonia: From the Vote on Account (VoA) on Monday, what are you expecting not so much the number for FY15 which is expected to be at 4.2 percent fiscal deficit but how the government may arrive at that number, what is your expectation this time?

Gokarn: I think that we are spending way too much time trying to project what the VoA is going to say. Mechanically it is essentially a way for money to continue to flow into government. It is not a policy statement, it cannot be a policy statement. There are two components to it which we can look at separately. One is the numbers themselves, which will give you a sense of where the fiscal situation is vis-à-vis the current year and at the end of 2013-2014 and some assessment of what the government might wanted to be over the next year if it were in office.

But beyond that is the rhetoric, is the statement that it is going to make that the minister is going to make about what the government’s overall intentions are, some rationale I would expect, some explanation for why things are the way they are and how it will go about correcting them essentially if it were to come back to power.From purely fiscal viewpoint, we have to wait till a fully legitimate budget is presented which is something that parliament has to vote on and that is going to happen at the earliest in July.

But I think even that timeframe between the formation of new government particularly if it is not the same configuration to expect some radical change in the fiscal situation in the space of a few weeks, is being a bit over optimistic.We should be looking at some sort of a holding action if we will to try and prevent the fiscal situation getting completely out of control in the new budget so certainly signals that they are going to take necessary steps and look at 2015-2016 budget as the one in which a concrete and long-term fiscal strategy is going to be put in place. So we are going to be waiting for a year to see those signals materialize.

For full interview, watch video