The Bharatiya Janata Party (BJP) may be the favourite to form the next Government at the Centre, but appears distinctly worried about the kind of economic situation it will have to deal with if it returns to power. It also differs from the current Government’s policy position on several issues, including foreign investment in retail. In an exclusive interview, senior BJP leader and former External Affairs and Finance Minister Yashwant Sinha says foreign investors would be better advised to wait for the formation of a new Government before putting money into this sector. Excerpts:

Your party has been opposing FDI in multi-brand retail. Now, the FIPB has cleared Tesco’s proposal. Many more are expected. If the BJP comes to power, what will be its stand on these?

I make it very clear once again that we are opposed to FDI in multi-brand retail trade. But it has taken some time for the first proposal to be cleared and we will have to see how much time it takes to operationalise. About clearances of other proposals concerned, they will follow and so they will take more time. My advice to foreign multi-brand retailers is they should not hurry. India will face a general election in April-May. Before they (foreign companies) operationalise anything, they should wait for the new Government to clarify this policy. It would be safe for them. But given the strong position the BJP has taken on this issue, it would be difficult for me to say we will go along with any approval being given at this late stage by the (UPA) Government.

Coming to legislative reforms on tax and insurance, the Standing Committee chaired by you has given its reports on the proposed legislation, but the Government could not get these approved by Parliament. What will be your party’s stand if it comes to power?

It is a multi-party committee and its recommendations should be seriously considered by the Government. Unless there are strong reasons to disagree with a recommendation, the Government should generally go along with it. That will be our stand if we come to power. We will adopt the recommendations because all the recommendations are well-thought-out ones. Unless the bureaucracy has some very important arguments to the contrary, these should be accepted.

So, on tax reforms, we will go along with the committee’s recommendations. As far as insurance is concerned, there the Standing Committee did not recommend a hike in FDI cap to 49 from 26 per cent. That is an issue where we will have to very carefully consider any increase in the limit. If there are problems in the insurance sector, there are ways of tackling it, and we have to have a comprehensive look. I refuse to believe that raising 26 per cent to 49 per cent is the magic wand that will improve the insurance sector. There are lots of suggestions in the Bill as well as in the recommendations of the Standing Committee for improving the insurance sector. These should receive priority.

Coming to the Direct Taxes Code, when official amendments were to be considered by the Cabinet last time, one of the key provisions — imposing 35 per cent tax on those earning above Rs 10 crore — is believed to have faced opposition. Do you support imposing an additional tax on the super rich?

Chidambaram fixed the rates of income tax of 10, 20 and 30 per cent in 1997. We did not change that. Even when they (UPA) had been in power for almost last 10 years, they did not change these. Revising rates or slabs is a very serious issue and should not be looked at casually. There may be a case for reducing 10 per cent or increasing the threshold limit (as recommended by the Standing Committee). It has been an acceptable stand that any unwelcome increase in tax brackets leads to evasion and, therefore, we should create a situation which will not encourage evasion. So we will take a call as and when required.

How do you read the fiscal situation?

The Finance Minister has been saying that 4.8 per cent (fiscal deficit) is the red line and that will not be breached. How will they achieve this from all the information that is flowing in? It will be impossible for them to achieve it. How did he achieve the target last year? Again, by ruthlessly cutting expenditure. My information is that the Finance Minister will do a combination of a few things. One, he will cut expenditure, especially Plan expenditure, mercilessly. All other Ministers in his Government are already protesting. He will cut defence expenditure. Something like Rs 1-1.50 lakh crore will perhaps be saved in this manner. He plans to collect an additional Rs 50,000 crore by way of increased dividends from the PSUs and the RBI. That will give him receipts of something like Rs 2 lakh crore. Then he will postpone subsidy expenditure on food, fuel and fertiliser from this year to next year by just not paying the bill. That could be anything between Rs 50,000 to Rs 1 lakh crore. All these make for Rs 3 lakh crore, which is 3 per cent of GDP. So, he might say, ‘I have stuck to the red line of 4.8 per cent,’ but 4.8 per cent in reality would be 8 per cent of GDP.

This could also mean trouble for the next government?

Of course. This Government is following a scorched earth policy. Leave as many problems for the next government as you can.

What about the current account deficit?

They are saying it will be 3 per cent of GDP because GDP will be a much smaller number than they have budgeted. I have no doubt that just like fiscal deficit is artificially compressed, the CAD will also be controlled in that manner. For instance, imposing 10 per cent duty on gold and putting all kinds of impossible conditions. Gold imports have gone down and gold is being smuggled. So, this is not a real reduction. It is only that (gold) which is not coming legally is not being reflected in the official account. This is a very temporary situation and I do not think will help, unless there is a real reduction or genuine reduction in CAD.

Is there any way to maintain CAD between 2.5 and 3 per cent without imposing curbs on gold?

We have to bring it (CAD) down, I am not saying it should increase. Now, tell me why are we importing increasing quantity of coal if we have all the coal here? It is just because of inefficiencies in the system. The coal scam is another issue. I represent an area full of coal (Jharkhand). I can tell you that coal mines have been kept closed without any reason. One inspector of police decides that coal mines will remain closed and they are closed down. This is the situation. The state governments are least concerned and we are importing coal worth $20 billion. It seems the Government has lost control everywhere.

The RBI, in its latest report, has raised apprehensions on bad loans of banks. What is your view?

I do not want to be a purveyor of bad news or a prophet of doom, but it appears to me that if on account of domestic and foreign loans and external commercial borrowings, a situation of this kind has arisen, then it is a very, very serious issue. There is one more area of great concern. You know the swap arrangement made by the RBI has allowed to bring in $40 billion largely through arbitrage because the returns here are better than anywhere in the world. I am told that this $40 billion has a tenure of three years. So, after three years, this money will have to be returned, and it all depends upon how we are doing, how the global economy is doing, what the exchange rate is at that point of time. But two points that I would like to make is that, one, through this arrangement, we have only postponed the evil days temporarily for three years. Two, very unethically, we are putting this burden also on the next Government.