Q. Clearly, it's a job that you obviously enjoy. The reaction to this Budget has been slightly muted in the media. Some sections have been saying this is an election year Budget, with five states going to the polls and this may have bound you from doing any big-bang things in the Budget. What would you say?
A. You see the urban, English speaking upper middle class is your reader and viewer. They expect big-bang announcements and pyrotechnics in the Budget. But that's not all of India. This Budget addresses real issues of a large part of India which is agriculture. It addresses issues like improving their infrastructure, investments to be made in industries that have the potential to throw up huge job opportunities.
All that, I can see, is not headline-making news but they are the kind of things that are necessary to build a strong India.

Q. (This Budget)… is not in character with the PC Budgets, the big-bang Budget …
A. You can't do Big Bangs every year. The Big Bang tax reform on the direct taxes was done once in 1997 and again in 2005. You can't do it every year.

Q. How would you characterise this Budget? Is it continuity, consolidation or coalition economics?
A. It's a Budget that bets on growth and lends a helping hand to agriculture.

Q. You've got a lot of praise for things that you have not done wrong rather than things that you have done right …
A. The question is what is right and what is wrong. The section that is giving you that feedback thinks that the right thing to do is to cut their taxes or give them tax benefits, give them tax concessions.
But that section, I'm sorry, is not concerned about what is happening in rural India; what's happening to agriculture. It's not concerned about the fact that only 27 per cent of farmers get credit from rural institutions. It's not concerned that 50 per cent of all children born in this country are born outside a hospital. That section does not even accept the fact that the remaining part of India is crying for help. This Budget addresses those concerns.

Q. You have announced schemes for concessional lending to small farmers and earmarked significant sums for the social sector. But there is a difference between outcome and outlay… the government spends Rs 4 to get Rs 1 to the rural beneficiary…
A. It is premature to judge. I placed last time the outcome Budget. and by April 28 this year, we will place the performance Budget on that outcome budget. So you'll have two documents—the outcome budget placed in the beginning of 2005-06 and the performance budget placed at the conclusion of 2005-06. Let us judge ministries once the performance budget is published. And the next year's outcome budget will be placed on March 17.

Q. Do you have concerns about the delivery mechanism, particularly in the social sector?
A. I am more confident that the physical targets have been met. Now we'll have to look at the quality delivered. I think the numbers are going to be pretty good: the number of kilometers of roads, the number of houses, the number of villages electrified, the number of villages for which the drinking water problem has been tackled. I think the numbers will be very impressive. Now, we'll have to go down to see the quality of the product delivered.

Q. I know in a month, the report will be placed but what's your sense … have ministries done their bit? Have they spent the money that has been allocated?
A. See, I think on education and road building, the spending is very good. If you look at the monthly accounts put out by the CGO, which gives the spending figures for all the ministries, you'll see that some ministries are doing much better. Broadly, plan expenditure was running at 66 per cent compared to last year's 56 per cent at the end of December. The figures at the end of January will have come out this morning. Therefore, if 10 percentage points is the improvement in the rate of planned expenditure, it means that these ministries are spending.

Q. You have said in this budget that farmers will be provided short-term credit at seven per cent to farmers. There's been some criticism that you're administering interest rates and, secondly, will it happen?
A. I have said that it will require a level of subvention and I'm going to get that subvention after the Budget. We think that farmers in this country deserve to get their loans at seven per cent. Yes, a small urban section will oppose it but we think that this addresses the demand of the farming community. That would require a subsidy, a subvention and we've been giving this in the Budgets, so what's wrong with that?

Q. Are you confident that banks will implement this?
A. Well, a detailed statement will be made on this shortly. The RBI and the government are working together and we'll bring the IBA on board and we'll make every effort to implement the policy. I announced a farm credit policy on the June 16, 2004. I was criticised for that.

But today, everybody agrees that it is that policy that has taken farm credit from a level of about Rs 85,000 crore to Rs 125,000 crore in the first year and this year beyond Rs 142,000 crore and next year, up to Rs 175,000 crore.

Q. Moving from the farm sector to the corporate sector, there are concerns that growth in the corporate sector is slowing down.
A. Manufacturing, in the third quarter of 2004-05, slowed down, and likewise in the third quarter of 2005-06, it slowed down a bit. But the first and second quarters were good, and hopefully the fourth quarter will also be good.

Q. So do you expect your estimates of corporate tax collection to hold up?
A. Our RE (revised estimate) is reasonably accurate. In corporation tax, we are taking a hit of about Rs 7,000 crore, but we are making it up in service tax and customs. We are also taking a hit on excise that's because of a burst of exports … area-specific exemptions and industry-specific exemptions require a large amount of excise to be either drawn back or refunded. Overall, we are on target.

Q. When you say you are betting on growth, how much of it is consumption-led. After all, you have rationalised excise on a lot of consumer items.
A. Investment-led growth as well as demand-led growth. Consumption is rising; investment will rise, capacities will be added. I think both will stimulate both.

Q. Correct me if I am wrong, but the consumption boom in the economy has happened due to one major reform that has happened in the economy and that is the change in interest rate regime. Now there's some fear that interest rates are hardening. In that situation, are you still confident of consumption?
A. Interest rates are hardening not in India, but elsewhere in the world. Therefore, what's happening in India is a reflection of what's happening there. Now, we don't have full control over interest rates.

But given the interest rates, my judgement is that half-a-percent increase in home loan rates is not going to dampen the appetite of wannabes to own their own homes. Or half-a-per-cent increase in car or refrigerator loan will not going to dampen their enthusiasm to take these loans. Incomes are rising, aspirations are rising, living styles have changed; people want to have these goods and services, and I think they'll quite willingly absorb the half-a-per-cent rise in interest rates. I don't think there will be a slowdown in lending. In fact, bankers tell me that the demand for non-food credit has grown by 25 per cent year on year.

Q. Moving to investment, does it surprise you that Indian companies are investing more abroad than in India (last year it was about $3.5 billion) than the FDI into India. Obviously, something is happening that makes Indians willing to invest abroad but foreigners are unwilling to invest (in terms of FDI).
A. Both are investment according to me, both are good according to me.
If you invest abroad, you are probably exporting goods, you are exporting components, exporting finished goods. You are acquiring marketing arms, you are acquiring companies which would otherwise compete with you. So both outward and inward investments are good. But I don't agree with your numbers that outward investment is larger than inward investment. You have to count inward investment, you have to count actual investment plus the invested earnings plus other capital that I think is still large. Both investments must grow.

Q. But the fact remains that you haven't been able to ramp up FDI. It still remains at the Hindu rate of $3.2-4 billion mark, although you have spoken of higher levels, $10 billion or so.
A. If you count all the three heads of FDI, we are already pretty close to $7 billion or so. We need to attract to more FDI. We are, therefore, making a big push in the power sector, coal sector, telecom sector, shipping, civil aviation.

Q. What about retail?
A. In retail, we've made a small opening. That is all our political space allows us to open. And if there is more political space, we can look for other openings.

Q. When you speak of political space, is it within the UPA or outside of it? Is there consensus even within the Congress party on …?
A. See, the Congress is a large party and there will be shades of opinion there. But once the Congress takes a decision, that's the Congress' view. The Congress' view is in the Congress Party's manifesto. The UPA's views are in the NCMP. We don't think that NCMP or the Congress manifesto bars opening a retail chain. But at the Hyderabad ICC we were cautioned that we must proceed in a calibrated manner. So calibrating it, we opened up retail to single-brand chains.
So we should allow matters to rest there for a while before we try anything else.

Q. You have often spoken of equitable growth. The need for growth to go deeper and wide. Would you say that this budget brings equitable growth across the society?
A. It will bring more investments in rural India, accelerate the irrigation benefit programme, the rural roads programme, the RIDF window which has been expanded from Rs 8,000 crore to Rs 14,000 crore, and the repair estimation of water bodies, which is going to bring another Rs 4,500 crore (in investment). So more investment into rural India, especially related to agriculture.

Q. A lot of this seems incremental, although you have talked of bunching all central schemes and putting them under the Bharat Nirman, having a more programmatic approach than earlier.
A. Bharat Nirman is a programmatic approach. Tell me any other occasion where six programmes were brought together under one umbrella.

Q. Couldn't it be wider?
A. Precisely. All this is really integrated, linked to each other, intended to help the farmer, improve his productivity, raise his income. That I think is the major intervention on the infrastructure side. The other intervention is the on credit side, where we have assured that the farmer will get credit at seven per cent of the crop loan. That is a major initiative. Then the other initiative is what we are doing in drinking water, medical care, we've expanded the outlays for the National Rural Health Mission, the Rajiv Gandhi Drinking Water Mission and the Sarva Shiksha Abhiyaan.

Q. Your Government has spoken of rural employment and there is even the National Rural Employment Guarantee Scheme, but don't you think there's a need to open retail and food processing to allow people to move out of tilling the land to next stage of farm produce?
A. In food processing, I have announced a series of steps both on the fiscal side and the non-fiscal side.

Q. But that cannot move till you have retail. Most people cannot understand how FDI in retail …
A. The satisfactory part is that Indian companies are building large retail chains. So retail does not mean FDI in retail. If someone is building the retail chain, that is good. And I think at least two or three major groups have announced plans to building huge retail chains.

Q. You are a veteran of not just five budgets, but budgets in coalition governments. There's a lot of hype that precedes a budget presentation, but do you think this era (of hype) is over? The tax structures have been corrected, duty rationalisations have been done, so what …
A. You are absolutely right. There will be no more big bang budgets.

Q. So what will budgets be like?
A. Budgets will be a matter of fact statements of income and expenditure, sticking to the path of fiscal prudence and wise allocation of resources and effective monitoring of how those allocations are spent. Budgets will move to outcome budget, performance budget, tax expenditure statement, gender sensitivity, sensitivity to scheduled castes and scheduled tribes, inclusion, fiscal prudence. Those will be the main highlights of budgets in the future.

Q. . And the big reforms will be done quietly…
A. Big reforms will be done throughout the year, as and when policies are made.

Q. By stealth or by accident…
A. It will neither be by stealth or accident. It is governance throughout the year. You think I do my job one day in a year and go to sleep through the rest of the year? No. Every month, every week as policies are put together, we can make the big announcements.

Q. Your budget was expected to address petro-pricing. But did the Rangarajan Committee report come too late?
A. It came seven days before the budget. There was no time to address the issue in the budget. It has to be addressed now.

Q. When that happens, do you expect that to affect your growth projections?
A. No, Dr Rangarajan has told me that his recommendations should be taken as a package, and that we should not pick and choose. If it is taken as a package, it is revenue neutral to the government. But I haven't studied it in great depth, since it came just a few days ago.

So I don't think it should affect my bottomline. Whether it will be inflationary, we'll have to see, depending on the decision we take.
Any pass-through of price rise is bound to have some inflationary consequence.

Q. There's a lot of curiosity over your decision to abolish the 1/6 scheme…
A. The 1/6 scheme had outlived its utility. 1/6 was an instrument available to us in 1997. We now have better instruments like the annual information report, we've got PAN. 1/6 was giving us diminishing returns. Fewer and fewer people were filing returns under the scheme.

Q. Would you at some point want to phase out FBT? You have made some modifications this year.
A. FBT is justified as I said on the principles of equity. There's no country in the world which does not have tax perquisites. Tell me what is the case for a superannuation contributuion of Rs 15 lakh, say for a MD or CEO which will not be taxed in the hands of the employer because it is deduction then and it will not be taxed in the hands of the employee? Is there any justification for leaving a sum of Rs 15 lakh untaxed? We have now allowed Rs 1 lakh contribution by the employee and Rs 1 lakh by the employer to be exempt from taxe. Is Rs 2 lakh a year in superannuation fund a small amount? Rs 2 lakh a year in contribution to superannuation fund tax exempt means there is a tax saving of Rs 65,000. And Rs 65,000 tax savings is twice the per capita of this country.

Q. Two years from now, where do you think the major economic indicators will be?
A. The FRPM makes the projections. 2008-09, revenue deficit will be wiped out.

Q. But in terms of per capita income?
A. Per capita income is now growing at 3/3.5 per cent year; in two years where can it go? Maybe grow by another $60-70. That is only one part of the story. The other part of the story is that we'll hopefully have better roads, a better rail network, better airline connections, less congestion at airports, institutions of excellence, better hospitals. Some of those will also happen.

Q. Finally, there are rumours that you are moving across the road to South Block.
A. The South Block has I think two offices, and both occupied, and I don't think I have the capacity or the credentials to aspire for those offices.

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