Finance minister P Chidambaram told CNBC-TV18's Menaka Doshi today that the government will not roll back any measure, until it has a firm grip over current account deficit (CAD). The FM also said that the government’s divestment drive was going on as per the plan announced in September 2014.
Chidambaram is confident of achieving FY14 divestment target and adds that the red line of 4.8 percent fiscal deficit will not be crossed.
International Monetary Fund (IMF) in its recent report had said that India is likely to clock an economic growth rate of 4.6 percent this financial year and the expansion may improve to 5.4 percent in 2014-15. But, FM is optimistic that county’s FY14 GDP growth will be at 5 percent and over 6 percent in FY15. Further, he expects FY16 GDP growth to be around 7 percent and above 8 percent in FY17. However, he added that he is not happy with ending UPA-II term at 5 percent growth.
The full budget numbers will be presented on February 17 and the government will review current account deficit situation at budget, he said.
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Below is edited transcript of P Chidambaram’s interview with CNBC-TV18’s Menaka Doshi
Q: What is the reception that India is getting here because the last few years we have been quite literally down in the dumps?
A: I don’t know about the last few years. I haven’t been here for three years, but the reception is quite warm and quite friendly. A number of investors have met me and they all are very bullish about India. Everyone has told me about their investment plans in India for the next few years. I am meeting with some ministers and there is widespread recognition that in a globally slowing situation, India among a few countries has been able to keep its head above water.
Q: You said you haven’t been here for three years that had to do with you taking on another portfolio within the government. Do you think that was probably the one big reason for why we seem to have lost course in last five years?
A: I can’t answer that question.
Q: The reason I am saying this is because everybody I meet and all the global business leaders in the Indian business leaders say we were doing well in 2010 when the entire world was weeping and somewhere we went off track and it turned out very poorly for us?
A: I can’t comment on that, but you must remember that following the crisis of 2008 it is the stimulus package that boasted the economic growth in 2009-2010 and 2010-2011. That stimulus package had its upsides because it is stabilised growth. It also had some unintended consequences such as breaching the fiscal deficit limits and giving a boost to inflation. So, that debate will go on for sometime. Beyond that I can’t comment on what happened over the last three years. However, of the last three years I have been back in the finance ministry for a year and a half.
Q: You have been working hard to bring the fiscal deficit under control, you drew a red line at 4.8 percent and all the reports seem to indicate that you might actually come in well below that at about 4.6 percent. Can you give us a sneak peak?
A: No, I can’t. Wait until February 17. It is not too far away.
Q: For the vote-on-account?
A: Yes.
Q: Is this going to be routine vote-on-account or there are expectations that you might use the occasion though I know that there are different views on what should be within a vote-on-account and what not. Are you going to use the occasion to announce more?
A: We can’t make any changes in the Income Tax Act. Short of that I don’t think that there are any other constraints.
Q: That is a fairly big field left wide open.
A: But that is the legal position. Short of amending the Income Tax Act or any other tax laws, short of that I think the government of the day is free to make any kind of statement in Parliament along with the vote-on-account.
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Q: But only those that require an amendment to the act because there are some that can be done without amending the act?
A: That we are doing. Whatever, we want to notify under excise or customs we are notifying them.
Q: What should we look forward to on the 17th?
A: I can’t give you a preview of a Budget. You have to wait until February 17.
Q: It is not a Budget; you said it is a vote-on-account.
A: No, it is. The budget numbers will be presented for the next year. Appropriation is only for four months.
Q: This last minute mad-dash effort to get some of the disinvestment issues out in this quarter, if I may use the word extract special dividends from PSUs, to clear HZL and BALCO disinvestment which has been pending now for years. What would want to say? A: You have got it completely wrong. I am afraid the question is also loaded and biased. There is no last minute dash. I had set out a calendar. I made it very clear that disinvestment will take place only in the second half of the financial year. We are adhering to that calendar. We are disinvesting according to that calendar, which I had made public sometime in September.
There is no last minute dash. As far as special dividends are concerned we convened a meeting of the public sector companies in the beginning of the year, once again in the middle of the year and we made it clear to them the rule is use it or lose it. You have to use your money for investment. If you are not able to use your money for investment you have to return to the shareholder.
I want you to look at the document put out by the third plenum of the communist party of China. Public sector is set up to create wealth and part of that wealth must be returned to the owner of the public sector company for use in other areas. What do I do with the money? I don’t consume it, we use it for investment. We invest in other areas. So, what we are doing is perfectly in sync with what is the right thing to do and how we approach the public sector.
Q: Does that mean that the fiscal deficit number is going to come in closer to 4.6 percent than 4.8 percent?
A: You will have to wait until February 17.
Q: Can you give me a sense of the amount in excess that you had put down for disinvestment that you are going to be able to collect through the course of this quarter if you were to add special dividends, etc on it then we can do the math ourselves back home?
A: Some part of it will be shifted from under the head of disinvestment to the head of other non tax revenues. So, you will have to read the papers carefully. If it is disinvested it comes under one head, if it is special dividend it comes in another head. However, between the two I am confident we can achieve our target.
Q: Or exceed it maybe?
A: That I don’t know. We will see. The spectrum auction has to take place. So, I don’t know the number that will come there.
Q: But you won’t give me any numbers to work with?
A: Because I don’t know the number.
Q: What about the spectrum auction?
A: Spectrum auction is a big number. Q: If you use the reserve price as one basis for a number you know what the minimum you will likely collect?
A: The last time we had a reserve price there were no bidders.
Q: But this is 900 MHz, it is unlikely that you won’t have any bidders. This is the bread and butter for telecom companies.
A: I don’t know. You know more about bidders than I do. I don’t know.
Q: But at least can I say this that you are confident that we will come in below 4.8 percent for fiscal?
A: All you can say is that the red line will not be breached.
Q: There is one more question that has come in and this is a news report that is playing out in India today which has to do with a letter written by Sonia Gandhi to the government asking for a rollback in some of the measures that you had imposed on gold imports, the 80:20 measure and I am wondering whether any of this is on the agenda?
A: I have not read the letter, I don’t know.
Q: Besides tax changes you could pretty much announce anything?
A: Not besides, except tax changes.
Q: I am sorry to catch you off guard but this was a piece of news that came in and the news channels are covering it so I thought I put it to you if that is part of the agenda currently.
A: I have not read the letter, so I don’t know but until we have a firm grip on the current account deficit I do not contemplate any rollback of any measure. We will get a full idea of the current account deficit only when the Budget is presented and when the year comes to an end.
Q: With regards to spending cuts can you take us through what we can expect in this quarter?
A: Spending cuts is misnomer. I have repeatedly said that. We always over budget our programs because ministries departments are ambitious, they think they can spend that kind of money. We are always over budget. Over the years, just look at the numbers for the last five years or six years, every year we have captured savings. There are rules in the government, the General Financial Rules (GFRs), we go by the rules. When savings are there we capture those savings. When those savings are captured it leads to a reduction in expenditure. But it can’t be simplistically described as spending cuts. It is actually capturing savings in an over budgeted situation.
Q: This reduction in expenditure, does it change your expectations of gross domestic product (GDP) growth at all for the next fiscal because this fiscal we now we know we are going to come in below 5 percent at 4.8 or 4.9 percent.
A: GDP growth is a product of many factors. So, for example if you don’t collect certain tax revenue that you anticipated that money is still in the hands of the people. They will spend it. Whether you spend money under planned expenditure or non planned expenditure as far as impact on the economy is concerned it is expenditure. If there are savings on one head but there is extra expenditure on another head it is still expenditure. So, you can’t say GDP will be affected by this or affected by that. GDP is a function of many factors. Our expectation is that the current year growth would be around 5 percent. However, for the next year I predicted before and I predict now growth will be 6 percent and above and that is what the global economic outlook put out three days ago.
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The next year they expect growth to be, next year means calendar year 2014 of financial year 2014-2015; there is an overlap of nine months. Nine months of this calendar year plus three months of next calendar year growth will be over 6 percent. That is entirely according to my estimates. And the year after growth will be 7 percent and above and a year after we will achieve our potential growth rate of 8 percent. We are on track. So whether we are 0.1 less in 5 or 0.1 more than 5 this year is no doubt an event but it is not going to have any impact on next year. All the investments that are taking place, all the reforms that have been done, all the changes that have been done will boost growth to over 6 percent next year.
Q: Are you disappointed with the low tax growth we have seen or the low growth in tax revenues?
A: GDP slows down, tax revenues also will fall short of the target.
Q: Your expectations were ambitious last year in the Budget?
A: No, we had assumed a GDP growth rate of what the Reserve Bank of India (RBI) said between 6.1 and 6.7 percent. So, we had assumed that the GDP growth rate will be 6.4 percent. If that growth does not happen, obviously we will not achieve the revenue targets.
Q: I have to ask you one more question about the impending elections. What do you make of what is now being called as AAP economics that we have seen unleashed in Delhi and now it is seeing even Congress ruled states like Maharashtra pickup cues in terms of the power tariff cuts?
A: I have not seen anything which can be called AAP economics; I don’t know.
Q: The power and water subsidy if I may call it as.
A: I don’t think even they will describe that as an economic policy. Maharashtra’s case is very different. I had a word with the Chief Minister of Maharashtra. In Maharashtra they were overcharging for power, it was far in excess of the rates charged in other state. So, they appointed a committee in 2011.
That committee has submitted its report now. Going by that committee’s report, they have reduced power tariffs by 20 percent across the board. Surely there will be some hit on the recoveries from the power sector but there will be benefits, spin offs by greater production and larger taxes in other areas.
I am told by the Chief Minister of Maharashtra that the reduction in power tariff will be revenue neutral for Maharashtra which is sound economics. But we will have to see how the policy is implemented and how it plays out.
Q: How confident are you of the UPA returning to power after this general election?
A: Nobody can predict an election. The media ofcourse thinks it can predict an election. It thought so in 2004 and 2009 and it was found hopelessly wrong.
Elections can never be predicted. Two and a half months is still a long time for people to make up their mind. In 2004 the Congress party went into election as an underdog. In 2009 because of incumbency of five years they said you are an underdog again.
Let’s assume that we go into these elections as an underdog. I would rather go into an election as an underdog than in a triumphal mode or a triumphal note. I don’t wish to name parties, but I can ask you to recall parties that went into an election in 2004 and 2009 on a triumphal note.
Q: I know you are saying underdog but the truth is there is considerable disappointment. We had an A team in the UPA, the first term the left bore some burden for the government not being able to move on many of the reform policies that it wanted to. In the second term, I understand we were in a volatile global environment but so many domestic issues, policy issues, environmental ministry, there are a trillion of them, very odd FDI policy changes. Indian industry you talk to, they can't say it to you but they do tell us that they are very disappointed.
A: They talk to me quite frankly.
Q: This was the A team, this was the dream team we wanted to lead the economy and look at where we are in 2013-14.
A: I am not happy that we are ending the term with 5 percent growth but the average of UPA-II is short of the average of UPA-I by about 1.2 or 1.3 percent but it is above the average of NDA by a good 1.5 percent to 2 percent.
UPA-I gets grade A but if you are looking at UPA-II and NDA, UPA-II scores over NDA. Nevertheless, I will be the first to admit that apart from the external environment, perhaps some decisions taken within the country could have been taken differently or could have been nuanced differently.
We are not happy that we are ending term with 5 percent but please remember there are only half a dozen countries of the world which can bolster growth of 5 percent and more. We are one of those half a dozen countries.
Talk to anyone in Davos, talk to any minister who comes to the World Bank or IMF meeting, they are amazed that despite a global slowdown India and five other countries have been able to keep their head above water which is a 5 percent level.
This is not a matter of self satisfaction or self praise, yes given the difficulties maybe we could have done better but I don’t think it is all gloom and doom as it is being presented. We are well on the way to recover. Talk to anyone in the Indian industry. I have spoken to dozens of them in the last couple of years, everybody uses two words the economy has stabilized, recovery is in sight.
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