Interview with Former finance minister
This is a vacillating regime that blames others for its inability to manage the economy and promote growth, former finance minister and senior BJP leader Yashwant Sinha tells Karan Thapar on CNN-IBN’s Devil’s Advocate show. Edited excerpts:
Let’s start with the state of the economy: Growth is fast declining, inflation is stubborn, investors are wary and the rupee is sliding. How serious is the situation?
Most of the things that you have said are worse than in 1999.
How much of the responsibility for this lies with Pranab Mukherjee, the former finance minister?
I would blame him for not taking the steps necessary when he was FM to bring the economy back on the growth path. But I would like to add that the economy was left in a shambles by his predecessor, Chidambaram. When do you thatch your roof? When the sun is shining. We didn’t do that. Chidambaram saw the warnings and failed to act.
Mukherjee was a socialist-era, licence raj man. Was he the wrong person to be the FM in 2009-2012?
Manmohan Singh should have known the mindset of Pranab Mukherjee and his outlook on the economy much better than anyone else because he had worked with him as RBI governor. But he chose to make him the FM.
Today, the prime minister is talking about reviving animal spirits, reassuring investors. Do you get the feeling that the prime minister is desperately trying to distance himself from Pranab Mukherjee and his policies?
These were policies followed by Mukherjee and Manmohan Singh, not Mukherjee alone. He was fully partner to those decisions. No important decision, whether in the time of Chidambaram or Mukherjee, could have been taken by the FM alone. Every word in the Budget is seen and approved by the PM. Today, if the PM says there are issues on the taxation side, didn’t he know that the retro tax or GAAR (General Anti Tax Avoidance Rules) would create this kind of atmosphere? If he did, why did he allow it?
Do you think he was complicit because he had no choice and was forced to approve policies he didn’t like?
Then, why should he be the PM? It is not open to any PM to say I didn’t agree with my FM but I couldn’t do anything.
Will the PM be be able to deliver, given the division of power between himself and (Sonia) Gandhi?
I don’t expect a government which has not taken tough decisions in the last eight years to suddenly become active and take tough decisions. Even Manmohan Singh has not been talking about taking tough decisions, but about softer options. In our country, politics always trumps economics.
As a former FM, what do you say the PM should do? How important is it that the fiscal deficit be kept at the 5.1 per cent target identified in the Budget?
A a matter of life and death for this country that the fiscal deficit be reined in. I suggest the total expenditure of the government, which is around Rs 15 lakh crore, be immediately reduced across the board by a 10 per cent cut, or Rs 1.5 lakh crore. It will reduce the fiscal deficit by 1.5 per cent.
The second issue is the need to revive investor sentiment and confidence. Has the time come to not just review GAAR, but perhaps put it in the cold storage?
No, many counties have a GAAR. It’s only that the way GAAR was drafted was not correct and Parliament’s) standing committee on finance has made some wholesome suggestions, widely welcomed by corporate India and other taxpayers. The government should soften it by introducing those changes.
The PM has also talked about ensuring arbitrary decisions taken out from the taxation system. Would you support any move that the government makes to get off what is called the Vodafone hook?
Without referring to any specific case, the finance committee has suggested the discretion available or sought to be given to tax officials be reduced and that officials be held responsible for the assessment orders that they pass.
Specifically on Vodafone, there is a view that because it was cleared by the Supreme Court, the government should accept the verdict and say the amended laws wouldn’t apply to Vodafone; they may apply to other people who haven’t been cleared by the court...
My view is Parliament has the right to pass legislation, especially in tax matters, with retrospective effect. But this is power has to be exercised with a great deal of caution. The Vodafone case has been very shabbily handled. The government should hold discussions with the company, with legal experts and find a way.
Finding a way out is imperative...
In the last quarter, growth was down to 5.3 per cent; last year, it was down to 6.5 per cent. Last week, Montek Singh Ahluwalia said to me that if the government could revive stalled infrastructure projects, particularly in coal and gas, within a time span of four months, that would boost growth.
This is what Montek and all of us did, when the NDA was in power. Montek should know it much better than anyone else.
But beyond simply removing bottlenecks on infrastructure?
Number one, we have already talked about the fiscal deficit. We should now pass some of the pending legislations. Three, we should create an environment in which the Reserve Bank of India will be encouraged to reduce interest rates. We should pay all the attention we can to infrastructure projects and I am not talking of only oil and gas but rural, financial, human and physical infrastructure. And, we should create an environment were more investment will flow in.
The government is talking about of passing, perhaps between now and the monsoon session of Parliament, FDI (foreign direct investment) in retail and in aviation. As a former FM, does it make sense?
As a party, we are not in favour of FDI in retail; we have made it very clear. We will continue to oppose it. There is no circumstance which compels us to bring FDI in retail. On FDI in aviation, it’s they who are holding it up. But both these reforms, if they are reforms, can be done by an executive order. They don’t have to wait for Parliament.
Will the political differences trump a commonly held need to have GST?
They haven’t so far and they should not be allowed to. If the government is determined, it can do a whole lot of things. If the government is weak and vacillating, it will try and look for alibis and put the blame on somebody else.
At this moment of time, when there is crisis in the economy, does this look a sensible measure to revive growth and spirit?
There’s no single, sensible measure to revive. They have to do a whole lot of things.
A second area is the legislation that seems to be held up in Parliament. I’m specifically talking about banking, insurance and pensions. Do you think you have agreement on pensions and the hold-up is from the government’s side?
The pension bill would not have been introduced in Parliament by the government if the BJP had not stood up and voted with the government. Today, the standing committee on finance has with its recommendations returned nine bills to Parliament and to the government. They are pending for various lengths of time at the government’s end, nowhere else. Insurance, banking, pensions...we have taken a view that in all these financial sector areas, FDI should be limited to 26 per cent.
On insurance, the government wants to increase FDI to 49 per cent. Paradoxically, there was the position of the BJP in 2001-2002; when the Congress wanted a cap at 26 per cent, you wanted 49 per cent. Why have you today reversed positions?
No, we wanted 49 in those days with the balance of 24 or 23 being given to NRIs, PIOs, OCBs, FIIs.
If the government will go back to that precise thing, would you accept 49?
We will see. You are asking a hypothetical question. When I had discussed it with the then FM, he seemed to agree with us that it should be restricted to 26 per cent.
If they go back to 49 in the way the BJP thought of 49, there is room for you to see?
They will have to reach out to us. I don’t know what the government is thinking.
So, the critical message is, they have to reach out to us.
Yes, they have to reach out with their concrete proposals. If we find it worth supporting, we will.
On GST (Goods & Services Tax) and DTC (Direct Taxes code) is that the same message? Reach out to us and we can find a solution?
DTC has been with the government since March. GST is under the consideration of the standing committee on finance and we will be able to give our report in the monsoon session of Parliament.
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