'We cannot take our high growth for granted'
Amid high political activity, the government's key troubleshooter and finance minister is also busy fighting inflation, pushing growth. Pranab Mukherjee in conversation with Gautam Chikermane and Gaurav Choudhury. Slices of his mindbusiness Updated: Sep 25, 2010 02:16 IST
In the backdrop of 8.8 per cent growth in the first quarter, strong domestic demand and normal monsoons, can we take high growth for granted?
Recovery is on the right track and the projection of 8.5 per cent (plus/minus 0.25 per cent) growth in GDP, appears achievable. Nothing can be taken for granted in economics, but can be reasonably predicted. If these conditions prevail, yes. But if the present conditions alter, if there is double dip recession in the US for instance, things will change. We cannot take our high growth for granted.
Food prices continue to remain at elevated levels and high demand is also fanning prices of manufactured products. The government appears to be running out of options to tame prices. Aren't you worried?
Prices remain a key concern and we are taking all necessary steps to moderate inflation. Under the new series with base year 2004-05, WPI headline inflation peaked at 11 per cent in April 2010. Inflation has been coming down month after month till August 2010. The contribution of food to headline inflation has been coming down consistently from February 2010.
A good monsoon has taken care of the supply side concerns and with RBI changing its monetary policy stance to check inflation and inflationary expectations the demand side pressures should also subside.
My assessment is that annualised rate of inflation in the financial year 2010-11 will be between 5-6 per cent.
Can we expect the Land Acquisition and Relief and Rehabilitation Bills to be passed in the winter session of Parliament? The Haryana model is being showcased by your party as a benchmark. Is that where we're headed?
The government will try to bring the Land Acquisition (Amendment) Bill and the Rehabilitation and Resettlement Bill in the next session of Parliament. The Haryana model is a good model which provides for R15,000 per acre per annum annuity (to be increased by a fixed sum of R500 every year) to land owners for 33 years over and above the usual land compensation.
What is the India stance in the Seoul Summit of G20 next month?
Immediately after the crisis, the first G-20 was held in Washington, then in London, Pittsburgh and Toronto. The Korea summit will be more or less about the endorsement of the Toronto Summit. There could also be some discussion about the uncertain recovery of the world economy. One aspect that we expect leaders to register their voices very strongly is their protest against any sort of protectionism. Another important component is development. When stability is coming, the developmental aspect of the world economy will have to be addressed. Developmental agenda should be at the forefront of the discussions.
The Direct Taxes Code (DTC) Bill introduced in Parliament is a watered down version of the original draft Bill that was released for public debate in August 2009. Why?
The first draft released in August 2009 offered a package deal. The original package in draft DTC was a lower tax rate with MAT on assets and high capital gain tax with no exemptions.
The bill introduced offers a package of a moderate tax rate with no MAT on assets, no long term capital gain tax on equity and continuation of exemption in certain situations. The bill should be seen in its totality and with a perspective that necessitates a certain growth in the flow of tax revenues to be maintained over time.
The lower tax rates, both for corporates as well as individuals were essentially to be funded by a minimum alternate tax (MAT) at 2 per cent on gross assets of companies. This provision was the one which raised the maximum concern among businesses. A substantial part of MAT revenue would have come from long gestation period companies in infrastructure areas or from companies who were in losses owing to the cyclical nature of their industry.
The second important source of revenue in draft DTC was imposition of capital gain tax at 30 per cent on short term as well as long term capital gains. Infrastructure is high on government priority list and we need $1 trillion (R45 lakh crore) investment in it. Therefore, to promote foreign investment flows, a balance has been maintained by reducing the long-term capital gain taxation from 30 per cent to nil and by retaining the corporate tax at 30 per cent from the proposed 25 per cent.
A consensus seems to be eluding on the goods and services tax (GST). What are the main bones of contention and when and how do you expect it get resolved?
We are trying to develop a consensus on the draft constitutional amendment Bill which is required to be first passed by the Parliament and then to be ratified by at least half the states. The Bill after incorporating the suggestions of the states has been given to them. It is heartening that many states have already expressed their willingness to go ahead with the introduction of the amendments.
Some have expressed their reservations about the loss of fiscal autonomy due to the harmonisation of rates and procedures. Some of them have sought more time to study the revised draft. I am hopeful that consensus will emerge and I will be able to introduce the Bill at an early date.
There is a suggestion that bypasses the constitutional amendment route to introduce GST.
How does it help? We shall have to see what is the objective of GST. We should avoid multiple points of taxation. The rate of taxes should be predictable. There should be some uniformity. The rate of taxation should be determined by Parliament and legislative assemblies.
The Commerce and Industry Ministry had made a strong pitch for opening the FDI in multi-brand retail in a discussion paper last month. What are your views on it?
A detailed discussion paper has been placed on the website. The paper has generated a lively discussion and feedbacks and responses have been coming in. argument for and against FDI in multi-brand trade appear to be quite balanced.
Finance Ministry is actively engaged in formulating its view on the subject taking into consideration the diverse opinions it has received. A committee to examine and analyse these responses and provide necessary input for the proposed policy action has been set up. I am hopeful of an early finalisation of the policy.
A disinvestment target of R40,000 crore was set in the budget. How far are we from achieving the target?
In 2009-10, the government raised an amount of R24,000 crore approximately from five disinvestments — NHPC, Oil India Ltd., NTPC, REC and NMDC. In the current year so far about R2,023 crore have already been raised from disinvestment in SJVN and Engineers India Ltd. Some large public offerings are in the pipeline. I am hopeful that we will come close to the target.
You have been the No. 1 trouble-shooter for this government ever since we were in school. How intense is the pressure of the current crop of problems — Commonwealth Games, Kashmir, floods, Ayodhya and so on — coming together simultaneously?
Yes in Indian economy, political system, both in parties and in the government, always there are problems. Sometimes it may happen, as it is happening now, that a number of problems are clustered together. That is why it becomes more difficult. But we have ingenuity. It is not correct to say that I am the only trouble shooter. Many people are trying to solve the problems. The Prime Minister, the Congress President herself is taking a lot of interest in resolving the issues.