The Hindu Business Line : `Budget to focus on expenditure reforms'

"It is not entirely in my hands; ministries have to come on board to weed out outdated programmes; programmes that have outlived their utility. They have to consolidate programmes, focus on areas where the Central government intervention will be effective and shade areas where the Central government's intervention will not be effective."

MR P. CHIDAMBARAM, FINANCE MINISTER

In an exclusive interview with CNBC-TV18, the Finance Minister, Mr P. Chidambaram, said that he is not against the Special Economic Zones but is trying to grapple with the proliferation of SEZs. He intends resolving all technical and administrative issues for 63 SEZs.

On the Budget ahead, he said that it would focus on expenditure reforms. More private and public investment is needed in agriculture. His ministry would look at tax concessions for private investments in agriculture.

Excerpts from CNBC-TV18's interview:

Let me start by asking you about the title of the book Why Good Economics Works For Everyone. Have you managed to convince members of your party and your allies about this very fact?

I think everybody deep down believes that good economics works for everyone. What they are impatient about is — why does it not work for everyone at the same time? In a country as large as ours, in a very pyramidal structure with social stratification, economic stratification, etc., the fact is that economic reforms will work for those who are at the top of the pyramid first and then will percolate down to the middle as well as the bottom levels. To compensate for this slow effect, we address the concerns of those that are at bottom of the pyramid. This is a complex explanation, which will take time to carry through the party, through the allies and finally reach the people.

The SEZ initiative seems to be caught in a bit of a muddle. Are you apprehensive about where this is actually headed because there seems to be public differences between the Finance Ministry and Commerce Ministry?

There are no public differences.

There have been on the number, on the revenue loss, as well as on the processing area...

Initially we thought that we should not stand in the way of clearing SEZs. I do not think we anticipated such large number of SEZs to come up. China has six, United States, I think, has got two, three or four. They didn't anticipate such a large number.

If a very small number of SEZs had come, even if they were multi-product ones, or large land size ones, the problem may have been contained. When such a large number comes and you then multiply, the revenue losses over these large numbers are indeed revenue losses — it is foregone revenues.

Where does the SEZ debate then lie, because we just had the e-GoM (empowered Group of Ministers) meeting?

Since then there are issues that have come up; issues relating to land, land acquisition, rehabilitation, compensation, etc, have come.Inflation — in the book you talked about price stability and how that is a critical area or area of concern for pretty much every government — has become an area of concern for your government. How worried are you?

Fairly concerned, not worried. The reasons for some inflation are clearly discernable — supply-side constraints, of wheat, pulses, edible oils and until a month ago, sugar. So it is not as though we are grappling with the unknown. Therefore, I am not worried; we know what the problem is. If I did not know, I would have been worried.

There are only three fronts on which you can add to the inflation. One is fiscal, one is monetary and one is a supply side. I have taken action on the fiscal side, which would have been done anyway on February 28 in accordance with our autonomous policy. We are reducing Customs duties. So I have done it five weeks ahead. On the supply side, there are no short-term answers. In the short-term, you cannot increase the production of wheat or edible oils or pulses. In fact, pulses are the main problem, the production of which has been stagnant whereas pulses' consumption has increased by 20 per cent. On the monetary side, the RBI Governor has taken action in the last two Monetary Policy statements and I am confident, he would review the matter.

Please remember, in a way we are paying the price for our success; there is so much money flowing into the country — FDI, FII, NRI remittances, tourism earnings, software export earnings, private equity, venture capital — all this money is feeding money supply. Managing money supply of course is the Governor's responsibility but he too is facing a difficult situation.

On the pension reform side, we have actually seen some momentum and some movement. The Left is again opposing that, 19 States have bought into your argument and the investment model for the New Pension Scheme is likely to be notified soon. When are we going to see this economic architecture being prepared and presented?

Please remember that this is an interim arrangement. I emphasise it is interim; the final arrangement will emerge after the Bill is passed, with amendments, of course. The way we are allowing an option, either you want to put it in 100 per cent government bonds, or we are giving the alternative, namely, the pattern now enforced for non-government provident fund, which is already notified; you will have to apply it.

Now I will call the Pension Fund Regulatory and Development Authority, which has to select the central record-keeping agencies for which bids have been invited; then the authority will select the pension fund managers. The first will be a public sector and may be the second will be a public sector manager; we may not need more than one or two at this moment, as the amounts are still manageable. Then he has to notify the two plans, which will take a little time, but I think we will set the ball rolling.

With less than a month to go for the Budget, give us some sense of it, because in the book you have talked about how the Budget, in that sense, has lost that big bang reform push... real changes happen on the margins. But given that your collections have been a lot more robust, and you are sitting in a prettier picture. Do you actually think you will get room or scope for big bang reforms this time around?

Please remember the big bang reforms were done between 1991 and 1993. Again, in 1996-97, the trade policy big bang reforms were done between 1991 and 1995. You cannot do big bangs every five years. The point is, tax reforms, by and large, are being done; now we are addressing sectoral issues, exemptions, incentives those kinds of things. The direction is clear, but obviously, there will be some changes in rates. I don't know which way, what rates, I cannot say that, but there will be some changes here and there depending upon the situation.

Room for expenditure reform; you have talked extensively about that in your book.

It is not entirely in my hands; ministries have to come on board to weed out outdated programmes. They have to consolidate programmes, focus on areas where the Central government intervention will be effective and shade areas where it won't. So I think ministries must come on board to economise on expenditure and try to get the best band for the buck.

Agriculture and infrastructure now, will these be the two trust areas really in the Budget?

Undoubtedly.

We understand the National Commission of Farmers has submitted the interim report. You have talked extensively about agriculture and how we have not articulated what we actually need to do to this sector in your book...

First, more investment in agriculture — public as well as private.

What of breakthrough ideas on infrastructure; you have talked about using foreign exchange?

If you have got any ideas, I am willing to listen to them. But for my ideas you will have to wait till February 28.