Would it be fair to say that you have been a lucky general more than an astute one?

The underlying thought behind my question was, individually when you look at it you have missed all your revenue targets; you were behind in the corporate tax target, behind in the personal income tax target and also in excise targets, but just one customs bailed you out?
Wrong. In personal income tax we are bang on target - Rs66,239 crore. In customs we are substantially ahead of target, we are almost Rs11,000 crore. Service tax, we are ahead of target at Rs5,500 crore. We are behind only in two out of five taxes, that is excise and corporation tax and there are good reasons why we are behind. But overall we are bang on target.

But despite the fact that you are behind in corporate taxes, you assumed a 28 per cent increase this year. What is the basis for that optimism?
This year banks and oil companies took a hit, so that hit is being absorbed in this year's revenue expenditure. On the basis of the revenue expenditure, I am projecting next year's revenue expenditure. Therefore the baseline growth gives me that revenue plus the GDP growth will give me the revenue. The hit that you took is already in the baseline now.

You mentioned the oil companies, someone would say that you have parked quite a bit of your fiscal deficit in the losses of the oil companies?
Not I, it's always being so.

No. It was never until there was a point when the oil pool fund used to recognise that deficit and it used to be stated above the line in the Budget. Are you stating anything above the line now in the oil companies losses?
We have made it publicly, transparently clear that the pass-through is not complete, the burden of oil prices will be shared between the oil companies, the government and the consumer. I have said it, the prime minister has said it, the minister of petroleum has said it.

The oil companies today are absorbing some of those losses and to that extent they have absorbed the losses. I have issued oil bonds.

Which if you had taken them into account, the thought is that your deficit would have been closer to 5 per cent and not 4.1 per cent?
But that is not something which happened only this year. Right through fertilisers, food and oil subsidies, whenever they are met through bonds they are not taken into the deficit. It is not something, which we have done this year.

I am talking about an accurate depiction of the deficit?
Therefore you take the off-Budget deficits also into account, it is quite okay with me. But you have to then compare it with off-Budget deficits in all past years, even then there is an improvement in the fiscal situation.

Improvement on fiscal situation the fact is GDP is growing so much and your tax administration has been good, so that's granted. Oil sector, nothing at all in your speech; it is almost as if you have shrugged off the problem?
I am surprised you say that, there is a whole paragraph on the NELP, there is a paragraph on three investment zone that we hope to establish this year for petroleum, chemicals and petrochemicals.

But how to fix the problem of oil prices and oil subsidy?
We got the Dr Rangarajan Committee report, only seven days before the Budget and seven days is too short a period to decide such a complex issue. Therefore I have said, we have concluded our consultation with stakeholders. We are ready, the Rangarajan Committee report is the latest that we have received and I have asked everyone to join me in forging a consensus, so the discussion will start now.

When do you think you will be able to seriously look and announce a prescription based on the Rangarajan Committee report?
I would not have announced it, the petroleum minister will have to announce it. For the government, we should give ourselves about three months for it.

So about 12 weeks is the target?
I hope so.

Excise. How do you tackle that problem, the lack of buoyancy in those taxes?
I believe the bulk of it can be explained by drawback since exports are booming, all that excise paid is getting drawn back. Since area based exemptions and specific industry exemptions have also enlarged over the last few years, excise has been drawn back or excise has been refunded or excise has not been collected. I am concerned about excise.

I have put together a system by which top people are reporting it online every week but we are trying to fix it. But the explanations that I have received so far is that export area based exemptions and industry based exemptions are leading to a large amount of drawback in refunds.

Is there any chance of looking at those exemptions with a little bit more tough stance?
We have removed some exemptions and I am going to put many more on the website, which I have referred to in my speech. Once we get the feedback, we will knock out many of those exemptions.

MAT, you said, is not a back door entry of long-term capital gains tax on equities. But for the corporate you have actually brought back the long-term capital gains tax?
We are only talking about MAT companies, unless you tell me that all companies in India are MAT companies. A MAT company by definition is a profit making company. It is because of the spate of exemptions, it does not offer any profits for tax.

The question is should you exempt 100 per cent from its tax liability, or should you exempt a smaller proportion of its tax liability? If the tax liability was Rs100, it was bound to pay tax of Rs30 as a normal company. The MAT company paid Rs7.5, which means the taxability was 25 per cent and the exemption was 75 per cent.

Now the exemption for the MAT company is only 66 and two-third per cent and you
would be taxed for 33 and one-third per cent.

Are you saying that if I am a profit making company not a MAT paying company and if I have gains of long-term capital gains, I am not covered? So that is very clear that this 10 per cent is only for MAT companies.
Only under section 115(JB), which applies only to MAT companies.

One more little complication added, one more exemption added. Last time you had said all long-term capital gains on equity is gone and now for companies who are paying MAT they have to now keep a track of that?
Between 1997 and 2004, this was included in the MAT profit and only in 2004 we removed it.

And now you bought it back?
But that I believed was a mistake and now we have corrected that mistake. There was no reason why a MAT company which otherwise makes profits should have its treasury management profits not included in MAT base.

Differential excise on cars, this was not expected from someone who takes a broad view or top angle view. This is like the old days of what the finance ministry decides what the consumer of India should buy?
Sorry, this is not for the consumer of India and I made it clear in the SIAM (Society of Indian Automobile Manufacturers) meeting that I will look into the small car issue because there is a great opportunity, which you people are missing. It is an opportunity to make India a hub for manufacturing small cars.

But you could have given a set off for exports, why give only for small cars?
Unless the domestic demand expands you cannot build and export cars. I have spoken to Korean, Japanese and Indian manufacturers, while they understand why there should be a 21 per cent excise duty on cars, their unanimous demand is that we have an opportunity and lets not miss the
bus.

The opportunity is understandable, you could have given a set off for exports but here the finance ministry is introducing a differential taxation consciously in a segment, which is bound to distort domestic demand?
No, it is bound to encourage people to buy small cars and allow them to graduate from two-wheelers to small cars. In some countries, the tax on cars is levied on the amount of space it occupies. A small car in a country like India means less pollution, less space. I think taxation can be used to actively encourage forward-looking policy.

Which is what I am saying… the finance ministry now deciding for the consumer.
Nothing wrong with that because when we come to an industry where we have a huge option.

Directed Lending of 7 per cent for farmers. This is good old days of directed lending.
You represent, your medium represents urban English speaking middle and upper middle class. Let me say this with the greatest respect, this is not all of India.

Are you recognising it as an explicit subsidy on your books?
I have said so in my speech that I will give a subvention. I have not hidden it. I have said so. I will request them to lend and that requires a subvention. I will give it on my Budget.

Of the entire amount, you have kept about Rs100,000 crore, I believe, away for that?
No. We have not even worked out the subvention because the details will be announced shortly.

Therefore, if there is a subsidy?
It will be on the Budget.

As long as you are giving us that assurance then fine?
It is there in the speech. Absolutely it will be there on the Budget.

You overturned about four Supreme Court judgements on taxes. By legislative fiat this time and we remember the celebrated ITC case last year where you brought in an ordinance to actually overturn a Supreme Court judgement?
And we entered into an agreement with ITC. We collected the money.

You can't fight big government? Who can fight big government if a big government decides to become so interventionist?
There the judgement proceeded on an interpretation of a particular rule or a notification and the judgement said that if this has been differently worded the result would have been different. So we were entitled to clarify that our intention was to collect that money.

That is the whole theory of validating legislation. The earliest judgement of
the Supreme Court in validating legislation goes back to the 1950s.

There are four cases - there is TEGA India, Technoweld.
These are all simple procedural things were we have to correct it and in many of the cases they are to confirm the relief granted rather to take away something.

Disinvestment, you just seem to have forgotten about the word.
You have not read all the Budget papers. The number is there. It is Rs3,840 crore. Two companies have been approved. We have taken it into the receipt side. We have passed it through the Budget papers to the national investment fund. It does not affect my fiscal deficit.

Only two have been approved so far. As and when more are approved we will take it and pass it through.

There are several creative ways of doing this disinvestment and you would know them as well. If you were to have a situation where BSNL were to buy MTNL and BSNL goes for an IPO. That is fully compliant with the CMP?
That was what the NDA did, cross-holding and buying cross-holding, and I criticise them for that. The disinvestments that we are talking about is, disinvestments of small portions of equity in profit making non-navaratnas. That is, the government monetises a part of its equity and reaps the capital gains values.

So those are the two companies?
So far approved. The cabinet has approved two and many more are coming. We hope to do about six to eight in a financial year.

And the amount would therefore go out proportionately, could it be Rs6,000-Rs7,000 crore?
I cant say which company is approved but going by some rule of thumb, I am not going to do disinvestments where I am getting Rs50 or Rs100 crore. Therefore, if we do between six and eight companies; non-navaratna small portion monetised, we should be able to garner about Rs6,000-Rs7,000 crore and put it away in a fund.

So therefore the disinvestment target could be Rs6,000-Rs7,000 crore?
It is not a target but just an effort.

April 1, 2010, seems to be the big date?
Is that not a major reform?

It is but are you saying that we are likely to be a zero-deficit country by then.
Yes, I think so.

Are you also saying we will have a GST (goods and service tax) at level of 12?
Just remember that between today and April 1, 2010, there is an election and this question should be asked to the FM of the day. I think the number will be somewhere between 14 and 16. Industry has recommended the number should be between 14 and 16 but what that number would be you must ask the FM of the day.

Mr Kelkar in his report spoke about 12 per cent, do you think that is too aggressive for India?
From our revenue requirement point of view unless there is tremendous widening of the tax base, 12 per cent may be too low a rate for us to give the revenues required for our expenditure.

Why did you not cut central sales tax to 2 per cent; why have you postponed it for later in the year?
That is because we have not reached the agreement yet. They have told me that they are going to make every effort to reach agreement by March 31. It only requires a notification.

By when do you think you will be able to do that?
I have given proposals to the empowered committee. The ball is in their court now. So I don't know, maybe this month or maybe early April.

So it's not too far away in the future?
Not too far away.

Lahiri Committee on the FIIs was expected to be the one rabbit that you could pull out of the hat as a sort of bold reform measure, but you didn't even mention it?
Sorry, Lahiri Committee was a committee to instruct the mind of the government. We have liberalised FII investments in government securities, we have liberalised FII in corporate bonds. There is a dissent note on the phasing out of the participatory note.

As long as I don't take a decision, the status quo continues. Lahiri Committee is not something that I have to stand and announce that. Rather it is something, which is a guide to me to make changes as we go along.

Are you largely in sync with those recommendations?
I have said that we will go with the majority view on the Lahiri Committee report.

Do you expect them to come over the next 6-8 months?
They will come one by one. In fact, we have already brought in a few.

But the big one? Of FII being treated different from FDI and sectoral caps only being applicable to FDI?
I take a slightly different view there. Today once we set the cap like in telecom, we have said there FIIs and FDI is fungible. The cap applied is taken together. The Lahiri Committee has recommended treating FDI cap and FII cap separately.

Because the two moneys are different?
Not quite. I have spoken to a number of investors. The FDI chap has also got an FII arm.

But as long as you don't act in concert?
This is all make-belief. There is no Chinese wall between FDI and FII. Take GE, its got an FDI arm, it has an FII arm. Virtually every company has got that.

Are you then saying it is not going to happen?
The downside is, if I make two caps then in many cases I have to bring down the FDI cap in order to accommodate within 100.

Below 100?
It has to.

But that's all right?
Then what's the point? Then you send a different signal to the world that we have reduced the FDI cap.

That communication can be made.
No, it can't be because the FDI signal is a more powerful signal than FII signal.

So I can detect that you are not quite convinced about that although that would be perceived as extremely positive.
The better approach would be, if you want to increase the cap, increase the cap for foreign investment per se. Don't make a distinction between FDI and FII unless it is absolutely necessary.

So that's the big one that you are not likely to accept.
What I am saying is equally big one. If this has come as a recommendation of the Lahiri Committee, you will probably say this is a big one.

Liquidity position in the economy, that is a bit of a concern. Everyone is being talking about how the interest structure is all moving up. Last time you tried to lean on the Central Bank Governor by saying that reverse repo rate is temporary. Are you likely to lean on him again to release some more resources, maybe cut the CRR?
You don't quite understand the relationship that I enjoy with Dr Reddy. I made that statement after I had discussed the matter with him. I recognise that there was perhaps an immediate need to tweak the repo and reverse repo rates because we didn't know what Mr Ben Bernanke was
going to do.

We didn't know what the European Central Bank was going to do. Now we are pretty clear what they are likely to do in March and in April. But I said that once we knew where those rates were resting or settling down, we could always reverse this. Call money rate yesterday came down to 6.5 per cent.

It is fairly high?
It was over 7 per cent. Our effort is to bring the call money rate down, inject liquidity. The Reserve Bank has said that it would look at each one of the instruments in a sequential order.

First is LAF (liquidity adjusted fund) that is repo on a reverse repo. Second is unwinding the market stabilisation fund. Third is the CRR. Therefore, in that order, the Reserve Bank has promised to take steps to inject ample liquidity for the demanders of credit.

So in April and July, in the credit policy we could get these things?
I trust the Reserve Bank completely and I am sure that Dr Reddy will ensure that there is ample liquidity in the market.

The last one is on the depreciation of the rupee. We are all celebrating a current account deficit saying India is growing so fast and we are getting so many dollars in from overseas. So we can live with high current account deficit. That's a nice little fiction that everybody has created.
It is not a fiction. Both Dr Reddy and I and the prime minister and everyone in government believe that a developing country must have a current account deficit.

Just a few years ago, it was a stated objective of the government to move towards the zero current account deficits.
That was a wrong objective by a government, which did not understand the needs of a developing economy.

Are we then going to live with current account deficits in the range of 3 or 4 per cent?
Not with 3 per cent or 4 per cent. We can live with a current account deficit between 2 per cent and 3 per cent. That is the surest way to ensure that foreign investment flows into the country.

Have you ever considered the fact that if the capital inflows from overseas don't continue to be as robust as they are today?
Alarmist argument. There is no reason to believe that. Today the IMF and all developing countries have recognised that remittances are today a stable component in capital flows. Every country now counts remittance as a pretty stable component. There is no reason why India should not count remittances as a stable component.

Would you also not like to be far more aggressive in getting FDI into the country?
We are. We are trying to bring FDI into the country but we have only so much political space. Within the political space we are trying. We went to Davos. We have this India campaign everywhere.

If we put FDI and FII as separate disparate elements, the number crosses 100 in some cases, then we have to bring down the FDI cap. That sends a wrong signal. Therefore, the better course is to have one cap and make FDI and FII fungible.

Where do you the rupee is going to settle? It has been showing a depreciating trend.
That is not correct again. The real effective exchange rate when I last saw it was 106 or so. So you are looking at the nominal exchange rate, the governor and I are looking at the real effects of exchange
rate.

Businesses are done on a nominal exchange rate.
Not quite. If they hedge they don't do it on nominal exchange rate, they take positions, they hedge Rupee also. We have to look at the real effective exchange rate.

The foreign exchange rate does not enter the Budget numbers because we are working on rupees. But we take the Reserve Bank's reference rate if we have to calculate anything on any particular day. Today the Rupee is moving between 44 and 43.75 - 43.80 (exchange rate to the dollar- editor) in that range. As long as it moves on that band, I don't think there is any reason to worry. Really we should be looking at ReR (real exchange rate).