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“We have revealed it all?

Given the Budget’s silence on a number of key issues, Finance Secretary Ashok Chawla has had to spend most of his time after July 6 explaining the unstated details of the Budget strategy. In a candid interview with Puja Mehra, Chawla elaborates on the Budget’s growth gamble.

Puja Mehra        Print Edition: July 26, 2009

Given the Budget’s silence on a number of key issues, Finance Secretary Ashok Chawla has had to spend most of his time after July 6 explaining the unstated details of the Budget strategy, thereby making him the ideal interview candidate instead of the FM himself. In this candid interview with BT’s Puja Mehra, Chawla elaborates on the Budget’s growth gamble. Excerpts:

Why doesn’t the Budget provide even a ballpark figure for the disinvestment target or set the road map for fiscal correction?
The Budget gives the policy approach but does not spell out the numbers because the information is not available right now on the list of companies or the timing of their disinvestment, the valuations and the amounts they will fetch. A ballpark figure is neither possible nor desirable because technically the proceeds go to the National Investment Fund (NIF) and cannot be put down as Capital Receipts in the Budget. The Cabinet Committee on Economic Affairs will in the next six weeks or so review whether disinvestment proceeds need to go to the NIF.

About the fiscal deficit, as required under the FRBM Act, we have laid down a three-year road map. It aims to reduce the fiscal deficit to 5.5 per cent of GDP next year and 4 per cent by 2011-12. It’s a realistic target. There will have to be a gradual reduction.

Why didn’t you wait for the Thirteenth Finance Commission’s recommendations on the path for fiscal correction?
We have said what we feel is feasible. We will get the Finance Commission’s recommendations on fiscal consolidation—that will not be binding— in October. If they suggest an approach that’s different and acceptable to the government, we can lay down another road map in Parliament in the next budget in February 2010. It’s true that the fiscal deficit (FD) is perhaps more than twice of what’s an acceptable level, but though we may have erred on the side of caution for the FD, we have revealed it all. There are no off-Budget items.

Is it a good strategy to allow government expenditure to rise so quickly and so much?
The Budget doesn’t even put on record the need to improve the efficiency of spending. The government can’t stop doing what it thinks is its responsibility or what it thinks is necessary for economic growth and welfare of the people. It is true that efficiency of spending has to improve and the government has been broadly saying that governance needs to be re-engineered to do that. The Budget says the fertiliser subsidy will become available directly to the user. The biometric cards will address the problem of the administration machinery. This is a problem that the government has to solve.

The Budget seems to bet on growth resulting from high spending to deliver the revenues the government needs to repay the debt it has incurred. What could upset this equation?
Theoretically, if we don’t get to that growth (the equation could get upset). It probably seems remote at this point, but the clear indication is that manufacturing is back on track. Exports, though, have to recover. There are some signals of domestic consumption riding on the pumppriming and public expenditure that should see us through to a 7 per cent growth.

You seem to have exhausted your fiscal leverage. With what levers will you manoeuvre the economy further?
We don’t see the need for stimulus as the normal spending is reasonably high. If a programme needs additional funding and there is a supplementary demand for grants, the only recourse would be higher taxation or borrowings.

The government’s high borrowings have effectively shifted the focus, therefore, to the RBI, which will have to decide between high inflation and high interest rates...
Inflation will not be an issue, though. Of course, CPI may continue to be high due to food prices because of the rising rural purchasing power. Headline inflation, WPI, which has been negative, should at best be 3 per cent by March 2010. Interest rates are where the concerns are about liquidity. So far, the RBI has handled the government borrowing programme well and indications are it will remain comfortable.

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