Finance Minister P Chidambaram presented his seventh Union Budget and, in the process, became the second finance minister, after Prime Minister Manmohan Singh, to present all five Budgets on behalf of a single government. This was perhaps the most political of Chidambaram’s Budgets, with a big emphasis on agriculture.
Chidambaram, whose Parliamentary constituency in Tamil Nadu is predominantly rural, seems to have moved a considerable distance from the finance minister who gained reputation as a diligent reformer after the so-called “Dream Budget” in 1997. He spoke to Mint after the Budget.
The common man probably never had it so good.
We are focused on farmers, we are focused on middle-class taxpayers, we are focused on women, we are focused on education, we are focused on health. We have covered, I think, every segment of the population.
If we just stay away from the politics, the inclusion part of the Budget statement where you talk of skill development, of a social safety net, what was the development perspective and the philosophy behind these decisions?
Skill development is taking place in a very diffused manner. The quality of skill development institutes is very poor. ITI’s, polytechnics are not really imparting world-class skills. In fact, I saw a statement that only some 30 trades are being taught in India whereas in China some 300 trades are being taught. We are not even imparting several skills that are required to be imparted.
We need to have a skill development mission that takes the best practices of the world and starts from scratch and builds up and scales up a network of skill development institutions. That cannot be done within the government system; that is to be done outside, with of course a government input. That is why we are setting it up as a non-profit corporation.
And, you have received positive response on it?
Yes, extremely positive and when we announce the non-profit corporation we will be very happy.
The other element is stock markets. You have changed the securities transaction tax (STT).
We have made an important change in favour of the broker, the buyer and seller in options and futures and we have made a small change as far as the person frequently buys and sells shares, STT paid is deductible. That is the normal business expenditure.
What about the capital gains tax? You have raised it.
Yes, if you stay invested for a year it will not affect you. When anyone buys and sells stocks frequently, he is really in the business of buying and selling stocks. He makes money. That is short-term capital gain. Many countries do not make a distinction between short-term capital gain and long-term capital gain. Some countries do not make a distinction between capital gain and any other income. Any gain, any income would have to be taxed at 30 per cent. We are taxing it at 15 per cent. It still has an advantage of 15 per cent. And anyway, as I said in my speech, whether he gets it as dividend on holding on to the share or whether he gets it as capital gains by selling the shares, he should pay the same rate of duty.
But, do you feel it will retard foreign institutional investor flow into the country?
Why should it? If you hold it for one year you pay no tax, which is the biggest magnet of Indian markets.
On the indirect tax side, other than the fiscal stimulus, how does it dovetail into the goods and services tax (GST) roadmap?
It does because whatever the GST rate is, we have yet not agreed upon a GST rate yet, 16 per cent is too high a proposed GST rate. It has to come down. And this year I wanted to give a stimulus to manufacturing. So both objectives converged. I brought it (CENVAT) down.
People keep talking about 20 being the combined GST rate.
I do not know. That has to be decided between the Centre and the state.
Are you happy with the fiscal legacy you will leave behind?
I think so. We inherited a fiscal deficit of 5.02 per cent of GDP. We leave behind a fiscal deficit of 2.5 per cent. If you add the off-Budget, we are still far below what we inherited. One point that some of them make about the Fiscal Responsibility and Management Act is that when you give oil bonds the life of 15-20 years, you are essentially violating the inter-generational equity participation. That is not new. That is not something that happened now. It has been happening in every kind of bond issue.
The Budget disappointed on reforms, especially when compared to what the Economic Survey laid out.
The Economic Survey has that advantage. It can think ahead, throw up policy options. Government takes into account a number of factors and then decides to accept one or two or more. We have accepted this time the smart card for the PDS (Public Distribution System). We have accepted a proposal that a coal regulator must be appointed.
(With inputs from Utpal Bhaskar)