"Our new deal for agriculture is not subsidy or even welfare driven, but largely investment-driven"

It's the 24th of 30 media interactions the Finance Minister has got scheduled on July 8 and July 9, but P. Chidambaram shows no sign of Q&A-fatigue. Looking relaxed and happy in a customary spotless-white veshti and shirt, he met with BT's Ashish Gupta and R. Sukumar for a snappy interview. Excerpts.

How difficult was it to draft this Budget as compared to the other two you have presented?

Well, for the first time, it was new (1996-97) and, therefore, I had to learn the art of Budget-making. The second time, it was a little easier because we were really aiming at opening up India's economy and getting rid of the suspicion that prevailed after the United Front government came to power, India was likely to become an inward-looking economy. This time the challenge was very different. This time the challenge was to factor in the lessons we had learnt in the last six to eight years and factor them in a way that does not detract from the reform process, but actually strengthens it. The only constraint was time. There was also the tremendous advantage of having as prime minister, someone who has done this four, five times.

Then, we had to marry these two objectives, namely the New Deal for agriculture and the rural economy with a reaffirmation of the ongoing reforms process, liberalisation, globalisation, opening up India's economy... We, therefore, struck upon the idea that the New Deal for agriculture would not be subsidy or welfare-driven, but investment-driven. Some welfare measures are there. Some measures have both welfare and investment aspects to them. But most are investment oriented. For instance, the restoration of water bodies is clearly investment-oriented. Of course, it has a welfare aspect to it: work will be provided.

One thing that struck us while listening to your Budget speech was that it looked to be the speech of a man getting ready to present five Budgets. There were indications in the speech of things that were likely to happen in the near future. Assuming that happens, where do you see the economy going in the next five years?

Well, I am absolutely clear in my mind that the economy will get stronger year after year after year, irrespective of who the finance minister is. As long as we don't swerve from the path we have chosen. What we missed was, we left behind a large number of people, the rural economy.

So you are basically looking for growth in the agricultural sector?

Why not? You look at the GDP growth rate. Factor out agriculture and draw a line. It is more or less a straight one. It is only when agriculture does well that GDP growth peaks. And when agriculture does badly, GDP growth dips. Otherwise, it is more or less a secular trend.

There also seems to be an assumption in your Budget that industry and services are doing pretty well. And that very little needs to be done for them.

Absolutely. There were no demands upon us from the industry. The only real demand was that the depreciation allowance of 15 per cent should not be linked to the creation of 25 per cent of additional capacity. Please lower it to 10, they said, and I accepted it. Otherwise, industry had no great demand. It simply wants an environment in which it can access capital markets and the banks for equity and debts.

Are you happy with the way the capital markets have responded to your Budget, especially the turnover tax?

If I was unhappy yesterday (July 8), then I am happy today. Therefore, I am not putting it as happiness or unhappiness. I think, when you introduce something new, the primal response is to fear it; that's true in every primate. The immediate response is as if a new animal has been let loose upon you. It (the turnover tax) is not a bad thing, if you study it properly. Let me place it on record that the idea of putting a transaction tax to replace a capital gains tax came from the FIIs (foreign institutional investors) and the brokers. I had calibrated at zero per cent (tax) for long term, 10 for short term and 0.15 for transactions. Well, if someone can give me three other numbers which add up to my revenue requirements, I am willing to look at those numbers. But the principle is right.

Was this the right time to come out with such a tax? The market seemed to be coming out of a trough.

I don't know. What is the right time and what is the wrong time? Where was the market in last July? It was much lower than it is today. I do not think that there is a right time and a wrong time. To do the right thing, I think every time is the right time. If you are doing the wrong thing, every time is the wrong time.

"To do the right thing, I think every time is the right time"

Your speech also said that there were a lot of things that we could look forward to in the next Budget, like major tax reforms.

Comprehensive tax reforms will have to wait. Meanwhile, I will get the Kelkar Task Force Report. All of you know only of the Kelkar Committee Report but since then there has been the Kelkar task force that has been reviewing the earlier report in light of the feedback received. I have had a sneak preview of that report but the report itself will come to me next week. But you can't do big bang tax reforms without the time to consider the implications. I think we will have to wait for another day.

Do you think you had the advantage of passing a Budget that had to take care of only six months?

It is an advantage in one sense that you can always say that I am coming back to you in the next six months. And that's a credible statement to make. And six months is not too long. It also has a disadvantage because expectations are raised and you can't fulfill them in six months.

The higher allocations for agriculture are fine, but the real problem lies in its delivery. Do you have any solutions?

What do you want me to do? I did not invent this delivery system. I didn't wreck it. Do I wait for the delivery system to improve before I begin to make allocations? Why was this question not raised last year or the year before that? Allocations have to be made. Side by side we must attend to the delivery system. I don't think it is right to say that the delivery system is bad, therefore I won't allocate money to rural India, that I will continue to spend only on the so called 'Shining India'.

Your Budget numbers show that you have estimated a 24 per cent increase in your tax revenue. Isn't that rather optimistic?

Please remember that there is an interim Budget number for every single tax. Has anyone questioned that? Has the BJP questioned that? All I have done is taken those interim Budget numbers, which are based on historical growth rates and buoyancy, added to that only additional resource mobilisation through new taxes plus the tiny sum that I will collect through arrears of tax. I have not done anything to the interim Budget number. I have accepted the interim Budget number as a starting point. I hope I am right in my estimate of arrears.

But what are these arrears?

There are arrears. In the arrears there are various line entries. One of them is called undisputed recoverable arrears. It is undisputed; it is described as recoverable and admittedly in arrears. But nobody has recovered it.

"We think that 7-8 per cent growth is possible"

Why is that?

I think previous governments have been so occupied with recovering current taxes and advance taxes that they forgot to recover arrears of taxes. It is quite large, but we are only taking credit for a much smaller amount because I (still) have to put in place a machinery to recover these arrears; existing machineries are cued into recovering current taxes and advance taxes only.

How will the Inter-Institutional Group (for infrastructure) work?

IIG has worked in the past in the power sector. It has brought six power projects to financial closure. Ten others were on verge of closure as of four weeks ago. As of now, they might have achieved financial closure. Identical machinery is being put in place. I have already given the names of financial institutions that are participating in it. They have Rs 40,000 crore on a callable basis. This is the beginning. If you have a project of Rs 5,000 crore, you can go to them, and IIG will meet and one of them will assume the lead role. It will appraise the project and report back to IIG. And once IIG endorses it, the money will be available. The money is actually there. I think there are three sectors that can be targeted: seaports, airports and tourism because other sectors are somehow taken care of.

Will it work under the direct control of the Finance Ministry?

No, it will be purely commercial. We only catalyse this IIG; just midwife it.

You have said that an eminent person will head the Investment Commission.

Well, it will not be headed by a civil servant. I have nothing against civil servants, but their orientation is different. We need someone who can go out and sit with the Tatas, the Ambanis, the Kumarmangalam Birlas, the Neotias in India, and also have the stature to go and sit with the CEO of General Electric, Novartis, or Toyota. And sit with them and say what are your plans, please ask your board to meet with me, and let me help you find an investment destination in India. To discuss with them, speaking with the broad authority of the government. And the projects will either go through the automatic route or we will clear them. This is a proactive, outgoing, initiative taking, investment-seeking kind of a machine.

How would you define your Budget?

Well, I can quote you Joseph Stiglitz, "We must learn to care and reason.'' This is a Budget into which not just reasoning has gone. This is a Budget into which care has gone. I have said in the last paragraph, 'We must bring thought and passion to governance'. Ideas are there but unless you care for people, I think these are meaningless. I think that the BJP learnt a lesson. It is not that they lacked ideas; they just seemed to be uncaring.

What is your greatest fear?

Well, a number of things could go wrong, although I wish nothing should go wrong. The external environment could become more difficult. I hope it doesn't. The monsoon could play truant, although the met forecast is very, very positive. That could turn out wrong. The delivery systems may not be in a shape to deliver and, therefore, a certain amount of disillusionment may set in.

Net net, you expect agriculture to help the economy grow at 7 to 8 per cent.

This year we are not targeting 7 to 8 per cent growth. The projection of various bodies is likely to be around 6 per cent to 7.4 per cent. Seven to 8 per cent is the long-term growth rate that we are looking at. Given the structural rigidities of India, and doing what is feasible and desirable, we think that 7 to 8 per cent is possible. If I had a 4 per cent growth last year, I could surely do another 8.2 per cent. But on the back of 8.2 per cent, we will be very happy if we can do something close to 7.