Speech of Honourable Minister of Finance - SHRI PRANAB MUKHERJEE

I would like to express my gratitude to all the hon. Members who have participated in the debate on the Finance Bill and make their observations.  Many valuable suggestions have emerged from the observations. Former Finance Minister has said that Indian growth story cannot come to an end and he pointed out that the Indian economy should revive and must revive. We shall have to go together to improve the situation, to improve the financial condition and bring back the economy on its track and explore the full potential which it has.  It is because the Indian economy has its resilience.  I must say that despite divergent views and despite differences in our approach, when it knocks at the doors, we have the capacity to respond to that unitedly.   Please do not mind and come rushing to the conclusion that more often we refer to international situation. We ought to refer to international situations.  We are not living in isolation.  What happens in oil producing countries affects me, affects my farmers, and it affects my transport operators.  I cannot remain insulated.

If there is a middle-Eastern crisis, if there is a West Asian crisis, if my potassium fertilizer price increases substantially, then availability becomes an issue.  It concerns me.  Today the entire world is inter-dependent.  Nobody can say that they can insulate themselves from what is happening in other parts of the country.  Therefore, this aspect is to be kept in view.  Between 2008 and 2011, two major international crisis had taken place.  As regards the Reports of the International Monetary Fund, how many times they revised or re-revised the growth projection of not merely India but also of major economy like China, USA and whole of Europe because the situation is changing constantly.  If a country is to live with 126 per cent of the debt of its GDP, it cannot live for a very long period of time without declaring itself insolvent.  When the oil prices are mounting every day, it is just not a phenomenon concerned only with the oil producing countries because we are the oil consuming country; India is one of the largest consumers. 

Last year we imported about 170 million tonnes of crude.  Our domestic production is 33 or 34 million tonnes.  Right now, the subsidies which  we are providing, in the case of diesel, it is Rs. 14.50 per litre; in the case of kerosene, it is Rs. 31.88 per litre and in the case of LPG, it is Rs. 412 per cylinder of 14 kg.  Is it possible to maintain this level of subsidy?  So, the issues are to be addressed.  There is a tax component.  In Delhi, if petrol costs at the refinery gate Rs. 36 per litre, with the State taxes and the Central Taxes, it comes to almost Rs. 73 per litre.  Can we do something collectively, the States and the Centre together so that the Oil Marketing Companies are not reduced to a situation like this?  Today, we are talking of high price.  But, tomorrow, we may have to think of availability at all.  The demand in the major economies of the world is low because there is no growth.  Once the demand in these major economies picks up after the economic recovery, oil prices will go up.  So, this issue has to be thought of. 

We are  talking of fiscal consolidation.  And I do believe that without fiscal consolidation, the economy cannot be brought back to the path of higher GDP growth, for that how could we do it?  We shall have to mobilize resources.  It is a stupendously difficult task.  Current account deficit of four per cent, fiscal deficit of 5.9 per cent is quite high.  Can the economy bear it?  In the price rise debate, six photographs were referred.  But, in this connection, I do believe that if we can see just the three fiscal legislations passed, two major tax reforms passed, the entire  atmosphere will be changed.  But the Government is not in position to pass these  legislations  on  its  own. Some  hon.  Members  have  expressed apprehensions that we may go back to a situation like it was prevailing in 1991. But, I would like to submit that these two situations are not comparable.  The foreign  exchange reserve as a percentage of GDP was 1.9 per cent in 1991, today it is 16.9 per cent in 2011-12.   As regards the external debt, it was 38.7 per cent of GDP in 1991-92 and for the period from April to December, 2011- January, February and March, 2012 figures are yet to be compiled - it is 20 per cent of GDP.  Therefore, it has come down from 38.7 per cent of GDP to 20 per cent.  As regards short-term external debt, it was 146.5 per cent of reserve in 1991 and this has declined to 26.3 per cent. 

The short-term debt flow financed was about 11 per cent of the current account deficit in 2011-12 and 23.9 per cent in 2010-11.  So, there also we have made substantial improvement.  I do agree that the current account deficit is a matter of concern. Of course, it is a difficult situation, but we can overcome that situation as we have overcome in the past.  It has been raised that fiscal indiscipline has started from 2009-09 because of stimulus package.  I do not deny that fact.  Yes, we injected Rs.1,86,000 crore as fiscal expansion in the form of stimulus package. But I am not apologetic.  If I would not have provided the way GDP was decelerating, we would have ended the year with less than five per cent and we ended the year with 6.6 per cent.  Thereafter we had a bounce back; in 2009- 10, we had 8.4 per cent and in 2010-11 we had 8.4 per cent.  In view of achieving the objective of retaining the export destination we shall have to have a steady export-import policy so that the presence in the external market and the reliability on the Indian market as supplier remains intact.  Why did the stock market volatility take place?  One of the major reasons was because there was outflow of the FII.  For several years these FIIs are providing necessary support to fund the current account deficit.  So, it has to have its adverse impact on the economy and it had.  But we are trying to restore it. 

I am really delighted when one hon. Member informed the House yesterday that after DTC he will take it up the GST.  If these two things we can do, I believe - I request the hon. House to believe me - that there will be a sea change as a major reform in the Indian Tax System which will be transparent; which will be non- discriminatory; which will be viable; and which will provide tax buoyancy, as it has been established with the introduction of VAT.  The day will come, when we will see that what a tremendous revenue buoyancy would be; how compliance will improve with the introduction of the GST and with the introduction of the DTC. 

A lot of apprehension was there in the minds of people when India went to IMF to enter into Extended Funding Facility.  On the very floor of this House, many people told that you will ruin the Indian economy.  But India came out triumph.  It has nothing to do with the individuality or personality of Pranab Mukherjee.  It is the strength of the Indian economy; it is resilience of the Indian economy.  The contribution is by Indian farmers, Indian workers, Indian managers, Indian experts, Indian technicians.  I would also like to share some important parameters so that there is no apprehension on the current account deficit and balance of payment situation.  I am repeating that there is difficulty but the difficulty is not insurmountable.  The current high level of CAD is because of the huge 188 billion trade deficit.  Another season is not the FII flow has been reduced because the mutual funds, banks and other financial institutions of Europe who invested in India, in Indian market, had to withdraw because of the crisis in their countries and to contribute to build up the firewall, they had to protect them.  But if we take into account the other parameters like short-term debt to GDP ratio, import cover and foreign exchange reserves then we will find that it would be substantially helpful.  I would also like to address a couple of more issues which have been raised.  Regarding sovereign credit ratings, particularly in the assessment of Standard and Poor, they are negative. 

Outlook is negative but not sovereign debt.  Sovereign debt rating is reasonably high.  It is satisfactory.  That is why, when the Standard and Poor’s rating assessment came, I said it is a signal and it is an alarming bell.  I do not ignore it.  I take note of it that corrective measures are to be taken.  The corrective measure is that we shall have to confine our fiscal deficit, we shall have to ensure the environment for investment, for more flow of fund and more flow of technology but at the same time, keeping our eyes on the factors which I described as domestic demand driven growth factors.  Another issue raised by several hon. Members is about the availability of jute bags and the storing facilities of the food grains because this year the total food grain production would be 253 million tonnes. We are having a three-pronged strategy.  By middle of this month the additional jute bags will be made available.

Yesterday, I requested the West Bengal industry Minister to be in touch with the jute industry because mostly the jute industries are located in Kolkata and surrounding areas so that they can step up their production.  I would not agree to the suggestion that jute-packaging material should be substituted by the plastic material because that may help us temporarily but it will cause a permanent damage.  I had mentioned in my initiating observations yesterday that I would revert with certain relief proposals relating to Customs and Central Excise Duties.  In that context, I propose to provide concessions in Central Excise Duty to chassis for commercial vehicles, ballpoint pen ink, polyester fibre and yarn made from waste, and certain parts of footwear.  Among the major relieves in the customs side, are exemptions to wood pulp, goods required for the setting up of solar power projects and certain raw materials for the manufacture of the solar cells.  A notification to give effect to these changes would be issued in due course. 

I would like to submit that there can not be a situation where somebody will make money on an asset located in India and will not pay tax either to India or to the country of its origin by making some arrangements to certain tax heaven areas.   We cannot declare India as a tax haven simply to attract the foreign investment.  I want foreign investment for technology, for development for resources.  Regarding the issues of black money and White Paper, I am bringing the White Paper before the Parliament Session adjourns.  I will try to give all the relevant and possible information.  Those names against whom, prosecution has been launched by the Income Tax can be divulged.  There is no problem in it.  In respect of estimates of black money, three institutions are studying it independently and they will give their reports at the end of an 18-month period, which is coming to a close around July or August.