What the FM said
"A pro-investment, pro-savings budget"

Labelling his fourth attempt to walk the fiscal tightrope as a pro-investment, pro-savings budget, finance minister Yashwant Sinha told myirisfn.com, in an exclusive interview, that he had worked very hard for this budget and taken some difficult decisions. These were aimed at higher growth and a better deal for the people, and were not at all dictated by the compulsions of realpolitik or the assembly elections.

While he was in the process of screening the budget for 2000-01, Sinha recalled, everybody was gung-ho about the prospects of the Indian economy. "But now that we are registering only a 6 per cent growth rate, everyone's blaming me," he protested. There have been developments that could not have been foreseen, like the very steep increase in international petroleum prices, and the weak monsoon, he added.

Sinha also justified the reduction in the interest rate on small savings. Interest rates all over the world are determined by the core inflation rate, unlike in India, where they are out of alignment. Sinha said he had tried to do two things: reduce the rate for a time being; and, meanwhile, set up an expert committee to go into how these rates should become more market determined. His intention was not to discourage small savings, but to ensure that neither the states nor he is compelled to borrow at uneconomic rates of interest.

The finance minister defended small savings as still being very attractive, with their government guarantee and tax breaks. Although he has been reducing these interest rates over the past two years, these instruments remain attractive, and the total collections have been going up quite substantially year after year, he said. Sinha also cautioned against imagining that only big industrial houses borrow these funds. "It is farmers and all of us who are borrowing from the market, and it is our rates of borrowing that will go down," he pointed out.

On food and fertilizer subsidies, Sinha said that, rather than just tinker with prices and reduce or raise subsidies in an ad hoc manner every year, his budget sought to bring about a paradigm shift and a systemic change in approach.

Answering a question on why the disinvestment process was so slow, Sinha pointed to the case of BALCO, saying that the opposition to disinvestment came from political opportunism or convictions. "I am glad to say we have set in motion action on a number of PSUs and procedures have been streamlined, and so I don't expect any difficulties in future," he said.

Even as he felt that the Opposition was not right in raising baseless issues on disinvestment, it was Parliament's prerogative to discuss the BALCO issue. "It was discussed in the Rajya Sabha yesterday, and it might be discussed in the Lok Sabha, but the government is determined to go ahead," he said. The finance minister added that he had factored in the BALCO disinvestment in his budget calculations. Next in the disinvestment line are Indian Airlines, Air India, ITDC, Hotel Corporation of India and Hindustan Zinc, which should happen 'quite early next year,' the finance minister disclosed.

Sinha also revealed that he had been very keen to achieve the fiscal responsibility standards proposed in the Fiscal Responsibility Bill, now before Parliament. Even as a standing committee of his ministry is examining it, Sinha expressed regret for not being able to bring down next year's fiscal deficit to 4.6 per cent, but hoped the situation would improve 'as we go along.'

The finance minister pointed to the increased longevity and capacity to work of Indians as the rationale for not reducing the retirement age for government servants, raised to 60 three years ago. It would also be difficult to pay government servants on a performance basis, for want of benchmarks, he explained to a questioner.

Answering a query about the SSI sector, the finance minister said that the Chinese threat was overplayed. "Our exports to China have risen more than their exports to India," he said. He also pointed to the large package of concessions to the SSI sector announced by the prime minister last September. The SSI sector is now in a position to meet competition from within and outside the country, he added.

On the falling domestic savings rate, the finance minister blamed public sector dissavings, namely, the fiscal deficit of the government, as the most important contributor. The government was determined to take steps to make up for this, including tapping the insurance sector and the capital market, both debt and equity, Sinha added.

On growth, the finance minister said that he had worked under the assumption of a nominal growth rate, i.e., the growth rate of the economy plus the rate of inflation, of around 12.5 per cent. He said he hoped the policies set forth in his budget would help achieve the 9 per cent growth rate that the prime minister has set for the next decade.

Just before winding up the interview, Yashwant Sinha revealed that the most difficult decisions in this budget were the ones on cutting the interest rate and labour market reform. Asked whether after his latest budget, he now knew what the 'feel-good factor' is, he replied: "Nobody knows that more than I."