Not given up on reforms: Pranab

As the United Progressive Alliance government draws flak on 'policy paralysis', Finance Minister Pranab Mukherjee says this ignores much of the ruling coalition's work.

He stresses efforts to address various issues, carrying forward reforms, addressing issues like black money, creating a conducive environment for investment and engaging with civil society members on their concerns.

Interacting with economic journalists, he said a review of the nine per cent growth projections made in the Economic Survey for 2011-12 could only be made after the first quarter gross domestic product figures are out by August 30.

The background note given by his ministry pegged the growth at 8.6 per cent, slightly higher than the 8.5 per cent achieved during 2010-11.

He said though food inflation is high, it was substantially down at over eight per cent in June this year from over 20 per cent in February 2010.

By the end of 2011-12, he believed overall inflation would decline to a six-seven per cent range from 9.44 per cent in June.

Mukherjee interacted with journalists on a wide array of subjects, in the wake of Prime Minister Manmohan Singh's meeting with senior journalists last month to address the impression that he was 'in hiding'.

Excerpts from the FM's observations on various issues:

On charges of policy paralysis

"There is a sort of cynicism that we are getting. You are talking of perception of  policy paralysis. One shall have to keep in mind that we are not living in an isolated world.

"We are part of a global development.

"Therefore, when you look at the recovery process of America, there is renewed weakness as reflected in their retail sales and housing and labour markets.

"Similarly, the Chinese manufacturing industry expanded in June at the slowest pace in four months.

The purchasing managers index dropped to 57 from 61.9. You are all fully aware of slowdown in Europe.

Only France and Germany (are growing); the recovery of others are not strong enough. In that context, one should look at our performance.

"It is taking long to take a call on entry of more players in the banking space. But I will not call it a policy paralysis. RBI (the Reserve Bank) will issue final guidelines and then licences would be issued.

On black money

"I cannot make comments on the judgement of a court (Supreme Court). Only the court can make comments.

"So, we have filed an interim application. Let us see what is the outcome. So much talk has been made on black money.

"There is no denial that there has been a problem. . . With about 87 countries, we have initiated negotiations on a double taxation avoidance agreement, tax information exchange agreements.

"With 57 countries, negotiations have been completed; they are in progress with 29 others.

"We signed an agreement with Switzerland in 2010. Their legislature should clear it by September-October.

On growth

"It (review of growth, pegged at nine per cent in the Economic Survey for this financial year) will always happen during the middle of the year.

"There is uncertainty in the global economy. There is instability in the global economic recovery process. Therefore, we cannot be insulated from the adverse impact of that uncertainty, to a certain extent.

"But you don't gain anything by saying that there would be no growth, there would be slowdown in the growth without being backed by a trend in at least the first quarter.

Exports are growing high, despite uncertainty in Europe.

"Diversification of exports has taken place. We shall have to analyse these things on the basis of hard facts.

"It would be possible to do after obtaining the first quarter figures and looking at the trend.

On inflation

"There is no doubt that high inflation is continuing. But it is equally true that food inflation has come down from 22 per cent to a little over eight per cent, which is also not acceptable.

"Therefore, whenever I comment, I say that we should

take it in a little larger canvas.

"You have to keep in mind two reasons. To tackle the problem of the impact of the global financial crisis, we had also to go for huge fiscal expansion.

"During that period, RBI cooperated by adjusting rates. This has an impact on the demand side of the money.

"Almost three  per cent of GDP was injected as a fiscal stimulus package -- Rs 1,86,000 crore (Rs 1,860 billion). That not only caused huge fiscal deficit, it also spurred the demand side.

"On the agriculture side, at some point of time sugar prices were high, then they moderated. Pulses prices were very high last year; this year, pulses' production increased substantially.

Last year, there was 15 million tonnes less kharif production and that also had a delayed impact. These reasons are to be addressed.

My assessment is at the end of the year, by March, overall inflation should be anywhere between six and seven per cent, but in between, there would be some fluctuations. By the end of the monsoon, moderation will begin.

On reforms

"There is an impression that I have given up… But the series of major enactments that we have . . .  MMDR (Mines and Minerals (Development and Regulation) Act, Food Security Bill, which we have given more or less a final shape.

But, there is a process. We cannot overstep the process. In the last budget session, we had the banking amendment bill, insurance amendment bill; all these are in different stages of consideration.

"Legislations have their own time. The basic fact is that the ruling party does not have a clear absolute majority.

"In running a coalition government, partners will have to agree with the proposals or the reforms agenda.

"If they do not agree, if they are not made agreeable, legislative support will not be available. It is as simple as that.

"The ground reality is also to be admitted, when we sit in the government, we take one position; when we sit in the opposition, we take a different position.

This sometimes causes problems.

PFRDA (the pensions bill structure, now held up) was conceived during the NDA government.

On GST (goods and services tax, also stymied), the BJP manifesto had even indicated the rate, 12 per cent.

On divestment & fiscal deficit

"I am confident I will be able to get this Rs 40,000 crore or Rs 400 billion (budgeted provision for divestment proceeds).

However, I do not roll out a list of the companies, because I do not want to create a situation where the market will be flat.

Reining in the fiscal deficit (to 4.6 per cent) is difficult, but the target will be met.

On extension to RBI Governor

"We have not decided yet. He (D Subbarao) is a good man.

On land acquisition

"So far as this bill is concerned, this is in the final stage. Perhaps it may be introduced in this (monsoon) session.

On non-state actors' taking active role because of governance deficit

"Everyone has to play his assigned role. If we fail to do that, then some distortions start coming.

"Now, what is expected that legislators will legislate, they will debate, they will argue on policies.

"That is the normal expectation. But if we find that day after day, legislators, instead of doing their normal functioning, are obstructing or disrupting, then questions come to the mind of the common people.

On GST

"Anyway, it is their (Empowered Committee of State Finance Ministers) job, because it is their association. My role is to provide a helping hand.

"So, they are to decide. Sushil Modi (Bihar's finance minister, a BJP member) has been chosen (the committee's chairman).

I hope his leadership will take the steps forward. And, (if) certain hurdles we are able to overcome. Unless there is a consensus, a two-third majority will not be possible (for) the Constitution amendment bill (to roll out GST).

So, the timeframe is difficult to say. We're trying to synchronise with the Direct Taxes Code, slated to be implemented from April 1, 2012), but that may be difficult.

Image: Pranab Mukherjee