In an expansive and relaxed mood, Finance Minister P Chidambaram spoke to Aditi Phadnis & Sidhartha and explained the big idea behind Budget 2005-06 and his priorities for the coming year.

Would you call this a dream Budget?

I have never called a Budget a dream Budget or otherwise. These are epithets that the media and others use for Budgets. I think it is a Budget that clearly would be remembered as another watershed. It is a break from the past and breaks new ground.

So far we've paid lip service to rural India -- lots of pious declarations but little money and little thought went into what will be achieved at the end of the day.

For the first time, we have devoted a lot of time and attention to not only financial outlays but physical outcomes and have committed ourselves to ensuring that these outcomes are achieved by the end of the year.

There is a criticism that you may have used states' expenditure to take credit in your Budget.

On the contrary I have candidly stated that Rs 1,72,500 crore (Rs 1,725 billion) General Budget support includes Rs 29,003 crore (Rs 290.03 billion) that the states have to borrow ... that this is the necessary consequence of the Twelfth Finance Commission.

What happens if some states don't borrow?

This Rs 29,003 crore is fixed. The borrowing will be within the Rs 29,003-crore limit. If I borrow on behalf of the states, then I have to show it both as a borrowing, and then as a lending.

You have mentioned restructuring of subsidies, but subsidies have gone up.

Subsidies have been a no-no subject for many years. But how long can we duck the issue? I have alluded what needs to be done in the Budget. The rest must come out of addressing the political issue of subsidies.

So what is the game plan?

On food, the ministry of agriculture is planning to step in. And in the case of fertiliser, we are waiting for the Alagh committee report for the next phase of the pricing system from April 1, 2006. But we have to start now.

There are protests in the oil sector...

The collections are revenue-neutral for me and it was after discussions with the petroleum ministry that we worked out the re-jigging of rates. If the oil companies are content with the current recovery, there is no need to increase prices. But if they want to recover more, they will have to increase prices, for which they will have to go back to the Cabinet.

There is concern that you have not touched user charges.

It can't be spelt out in the Budget.

The higher foreign investment cap and sectoral review for FII caps that you announced in the last Budget have not been carried out. What is the roadmap?

For the insurance sector, there are a number of amendments that need to be made to the Insurance Act and the Irda Act. One among them will be to raise the foreign investment cap from 26 per cent to 49 per cent. There is no point in proposing amendment only to that section. We want to make it a part of a total insurance laws amendment Bill.

So should we take that as a policy that you are in favour of fungibility on the FII and FDI front?

Once we fix a cap, we should not fix sub caps for FDI and FII. All my interaction with foreign investors says that the same investor comes partly through FDI, and partly through FII. He usually has a financing arm that invests as FII.

You have talked about the banking roadmap and the RBI has issued guidelines on foreign investment. What else is included?

One part is foreign banks investment in Indian private banks. The other part is that public sector banks will be strengthened, their capital adequacy and other parameters will become stronger. One way of strengthening public sector banks is consolidation. But we are not going to tell any one "please consolidate".

How do you look at this whole problem of forex reserves?

If the economy is growing and confidence levels are high, forex will flow through remittances, export earnings, through investment, sometimes even for arbitrage in interest rates. We can only regulate it; we can't stop it. But large forex reserves have other implications that are being tackled admirably by the Central bank.

This forex reserve gives us an opportunity for tariff reform as well as be a little bold as far as infrastructure projects are concerned. So we have seized the opportunity and said, "Alright, let's go out and try to invest Rs 10,000 to Rs 20,000 crore (Rs 100-200 billion) on infrastructure".

Capital was not so much of a problem as regulatory issues.

Those issues remain but cannot be addressed in the Budget.

Is the special purpose vehicle the same as the proposal that was talked about earlier?

It is the same. The earlier proposal got a colourful image that we are using foreign exchange, but Montek Singh Ahluwalia clarified in an interview that what he meant was that it gave us so much head room to take on infrastructure projects that are import intensive and, therefore, that will use up the foreign exchange.

How has the Left responded on the Budget?

It has responded generously and quite reasonably. They have not pointed out any major flaws.

What is it that you haven't done for corporate India?

Nothing much, there are no major demands from corporate India. There are none last July, there are none today. They just want to be left alone, have a stable policy environment, stable tax policies and allowed to produce their goods and services. I think they are more worried about political instability -- they are more worried about unstable state governments.

They are concerned about legal reform, about delays in decision making....

There are no decisions that the Centre has to take. It's the state governments. We can't do anything about the state governments in the Budget.

On a scale of 10, where would you put yourself?

There is much to be done in terms of reform of delivery mechanisms, spending, auditing and accounting, and the legal system. You must be able to stand up and say "I spent Rs 1,000 crore (Rs 10 billion) and have got a 1,000-kilometre rural road.

I have spent Rs 5,000 crore (Rs 50 billion) that I have for 5,000 new schools, 5,000 new teachers and 500,000 students back in school". That connection between outlay and outcome has to be established.

What are you trying to do through the expenditure management plan that you have drawn up?

We are trying to measure the spending pattern of ministries every quarter and force them to spend on time. We are trying to tighten the whole system of revenue raising and expenditure management like any other business would do.

Produce a quarterly balance sheet that talks about what I have earned, what I have spent to earn that and what is the outlook for the next quarter.

Are there any specific demands on you from the Congress party members?

It's not a secret that there is some unhappiness about the way in which withdrawal tax has been understood by the people. Otherwise they think there is something they can take back to their constituencies.

Should we wait till the next Budget for more schemes to unearth black money?

Not necessarily. I can put on my thinking cap now and think of ways to unearth black money. That's my goal. If I have suggested one means and if that runs into some difficulty, I am obliged to think of other means.

Design: Rahil Shaikh

Photograph: STR/AFP/Getty Images

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