Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Finance Minister Pranab Mukherjee is easily the most sought after man in India today. After delivering his Union Budget 2012 in Parliament, he tells CNBC-TV18 that as far as petrol prices are concerned, these are decisions taken by the executive.
Mukherjee says he has chosen to take the conservative route by pegging fiscal deficit at 5.1% of GDP growth. So, for now, global events such as those stemming from the Middle East are not impacting India in a way which could see us slip into any macro economic crisis.
While he does acknowledge the precarious position that India is in, he says there is no need to panic. High inflationary pressures and the current account deficit do not have to be linked to growth, he adds.
The challenges to accelerate India's economic growth are high, yet Mukherjee believes it can be done. His proposal is to trim the government's subsidy burden. He has called for speeding the pace of economic reforms, which have been stalled by political gridlock,
Below is an edited transcript of his exclusive interview with TV18's Raghav Bahl. Watch the accompanying videos for complete details.
Q: In the two hours of your speech, I did not get an answer to this one very short question. Why have petrol prices still not been increased?
A: As far as petrol prices are concerned, it has already been deregulated; I am talking of petrol price deregulation which was done last June.
Q: Deregulated in form?
A: Therefore, there are two routes available to adjust petrol prices - one route is budgetary route and the other route is through the administrative mechanism route. If you look at petrol, diesel, kerosene and LPG prices it was deregulated long before.
Q: They have not been behaving in a deregulated manner?
A: That is for the executive to decide. It is not a policy decision but an executive decision which has to be taken.
Q: If the companies which are suffering so much had the freedom to increase they would have increased by now. Clearly, the principal shareholder, which is the Government of India, is not allowing them to increase and the single biggest burden on your Budget is fuel subsidy?
A: I am not disagreeing with that. That's why I am saying that for many of the issues, I have clearly laid the roadmap for what has to be done. When I am talking of pegging subsidy at 2.2% of GDP for the current year and in the next three-years to bring it down to 1.75% of the GDP that is the objective and I will do it. It has to be done through executive actions. I have never said that it will not be done through executive actions.
Q: Are we then likely to see diesel prices and fertilizer prices being raised? You have laid down a very ambitious target - 0.5 percentage points of the GDP this year itself. What is the roadmap ahead?
A: It is not very ambitious. Even your present level of subsidy is around 1.89% or 1.91% of the GDP.
Q: It's about 2.5% of the GDP this year.
A: This year it is a little more, but it is around that. Therefore, my target is not very ambitious. It is modest and achievable and it will have to be achieved through executive actions.
Q: It is an ambitious target because when prices have moved from USD 100 per barrel to USD 125 per barrel, oil companies still haven't moved. Therefore, it's not an easy thing to do. So when you say you will cut 0.5 percentage points in a year in which you have slipped on your fiscal deficit commitment by 1.6% points, isn't there understandable skepticism on how you will achieve that?
A: There should not be skepticism in the sense because if you compare it with the current year, current year economic situation was difficult. It was not assumed at the time of the presentation of the Budget for the year 2011-2012 because what was the atmosphere then? However, weak and fragile it may be, developed economies started recovering and there was a glimmer of hope.
The eurozone crisis did not assume this proportion, so in the context of that situation we presented the Budget. Therefore, the assumptions which I made during the year have changed and what assumptions I am making now is in the context of the situation which is prevailing, which is very difficult. That is why I have become conservative and I have put it at 5.1% for the current year.
I have talked about reducing subsidies thrice in my budget speech. I have expressed my intention and I have fixed the targets. Now these are to be implemented through executive actions. Your contention is - as long as you have not taken this executive action you are not going to do it.
Q: How do you convince the economy that you will do it?
A: There were certain other compulsive factors that are there that may not prevail now. Therefore, action will have to be taken.
Q: If there is a Middle Eastern crisis, then oil prices could spike to USD 150 per barrel. Has the Government of India done any stress test analysis on what you would have to do if you reach that situation because from USD 100 per barrel to USD 125 per barrel we haven't raised prices?
A: My point is very simple. Unless we take corrective measures, oil will not be available so there is no question of pricing. At whatever price you may like to have it may not be available. Therefore, corrective measures are compulsive.
Q: Therefore, you have to take them?
A: Of course.
Q: The numbers that are emerging are quite reminiscent of 1991 where your fiscal deficit, combined of state and centre is now pushing double digits, there could be an oil shock, your investment rate has become negative, you current account deficit is now at 3.6%. When the UPA government took office, there was a current account surplus in the economy. Are we in danger of slipping into a macro economic crisis here triggered by for example, a Middle Eastern crisis?
A: I do not think so because there are certain other basic macro economic fundamentals and factors which are different from what prevailed in 1991. What was the growth syndrome in the 90's? When did India have 7% GDP growth?
Q: From 1985 to 1990 we grew at nearly 6%.
A: It was 5.6% because that is the sixth plan target I took in 1991.
Q: We are at 6.1% today.
A: It is 6.9% and it is going to be 7%. Please remember that high inflation and current account deficit need not necessarily be linked with high growth rate. In the 1970's we had this, in 1980's we had it and in 1990's also we had it. The question I am addressing is that basic fundamentals are strong. Rate of domestic savings today is not 38% but it is 35%.
Q: It has gone down 600 basis points in the last five years when the rest of the growing economies were going up?
A: Please remember that in not six years, but in these four years you had two major international crises. Except for the oil crisis in 1989, did you have these types of major international crises in 1991?
Q: We had a fairly significant crisis in the Middle East at that point in time?
A: That did not affect us because India's exposure to that extent was not there. Therefore it is incomparable.
Q: I will be very assured if you are telling me that we are very far away from a macro economic crisis.
A: I am not a pessimist and I do not want to convey the message of skepticism and helplessness of India's Finance Minister. That is not my job. My job is to correct it and to point out that, yes, the situation is difficult. We shall have to tackle this difficult situation.
Q: USD 180 billion of trade deficit with just USD 300 billion reserves - these are not things which can just be wished away.
A: We had to deal with the trade deficit when we had USD one billion.
Q: You are conceding my point.
A: Let us not enter into a school debate. I want to convey this message to your viewers and that message is, yes, the situation is difficult but one need not panic. This difficult situation needs to be tackled. After the crisis of 1990, major economic reforms came and every political party sat up.
Q: So we must have that now.
A: No, I don't think so because long before that awareness would come. That is how I got the support of the major political parties on PFRDA. I got the three important legislations recommended by the Parliamentary Standing Committee consisting of the representatives of all political parties. Therefore, if somebody says there is no political consensus that it is not correct. There is a political consensus though it takes time to build up in a multi-party system like what we have but when there is a fractured mandate, you will have to live with that.
Q: There are elements in this Budget of the old command economy thinking of the government. First is the Vodafone retrospective amendment. This is the old - government is right, everyone else is wrong mindset. Then you have ONGC where you sell shares a week ago to the public and then you impose a cess. If I, as a private listed company were to do that, tomorrow morning Sebi would haul me in for insider trading?
A: I am doing it with the revised guidelines of Sebi. I would not have done it if Sebi did not revise their guidelines. Therefore, don't compare between non-comparables.
Q: I am not entirely convinced of which guideline of Sebi you are referring to which has been changed?
A: The latest amendment where the private sector and public sector have been brought at par. The corporate sector has this buyback arrangement and they are extending the same to us.
Q: I am referring to the Sebi requirement for companies to make mandatory disclosures of price sensitive information if they have it. If the government is going to impose a cess, presumably the government has been talking about this within the Finance Ministry for the last 20-25 days. When you have that information and you sell your shares to another shareholder, under Sebi law this is suppression of material price sensitive information and you are therefore subject to very stiff penalties. In fact, it is also a criminal offence?
A: No, I am not aware of the legal position of it. It is not that. The cess is within the control of the government. It is in an Act passed by Parliament via the Regulation Development Act, which empowers the government to impose the cess.
Q: What about Vodafone? What we understand is that it is a retrospective amendment?
A: It is a retrospective clarification because the Supreme Court in its judgment has stated that it is responsibility of the government through legislative mechanism to indicate clearly the intention of the legislatures and to determine.
Q: Retrospective?
A: Of course.
Q: The Supreme Court has never said retrospective. The Supreme Court has said under the existing law, Vodafone was right. If you wish now to impose a new law please pass legislation. That is what the Supreme Court has said?
A: We had issued the retrospective legislations because it has been done in the past; there is nothing new about it.
Q: That is exactly what I am saying. It is the old command style of government. You did it about 10-15 years ago in the case of ITC. Are we now back in the - big government is right?
A: I think we have done it even recently in minor areas.
Q: Just because change of retrospective laws has been done in the past does it make it right? When India is planning to become one of the front-ranking economies of the world saying that we have a rule of law?
A: This is a value judgment. That does not mean that what is within the legislative competence of the government, they will not exercise it. If the national interest is there whether somebody will treat it as a command economy or not, I am not so much enamored with the adjectives and epithets.
The question is whether the government has this right, whether the government has done anything wrong or anything beyond the directions of the Supreme Court. The Supreme Court has indicated that you correct, they did not say that you have to do it prospectively. As they did not say that you do it retrospectively, they did not say that you do it prospectively.
Q: They cannot direct the government?
A: Therefore, what they have stated we have complied with that.
Q: We understand this is a fractured mandate. The arithmetic of the Parliament is very clear. But you are the leader of the coalition and the job of managing the coalition is with you. The country has invested that responsibility in you to give and take, negotiate, engage etc, but move forward. Today, we did not see any final date yet on GST. Now it's been held over for over two years, DTC also has been deferred. When will this consensus building exercise fructify?
A: First of on DTC - the standing committee has submitted its report. I could have implemented it in the Budget if it was given three month's earlier.
Q: Will it happen shortly now?
A: They have given their report and apart from the DTC that I have mentioned, they have also given their recommendations on three legislations - PFRDA Act, Banking Laws Amendment Act and the Insurance Laws Amendment Act. So, these three plus DTC's recommendations are available and now we shall have to build it up.
Q: What about GST?
A: GST it is true that constitution amendment has not taken place, but without having people onboard with us, if you want it to be done tomorrow, it is not possible.
Q: Not tomorrow because I understand the constraints.
A: Constraints are there. Therefore, mere understanding the constraints will not help unless we can work on those constraints.
Q: But you are the government. The country has given you the mandate to lead this coalition.
A: You are accusing me of my old mindset, but this is the old mindset. I am in the government with a limited mandate and that mandate is - you carry the people with you. Therefore, as much time as it will require to carry the people with me I shall have to do that. I cannot be impatient.
Q: Every democracy in the world today is a coalition. The US president doesn't control his Senate and UK is ruled by a much unexpected coalition of conservatives and liberal democrats. Germany cannot elect its own president. The country never expects the government to solve these problems?
A: I am afraid, that for all the three examples you gave, it is not very easy for them to take the decision either. And not only that, the decision making process is also delayed. What has happened by the difference between the president, chief executive and the Senate we have seen. What has happened about the budget proposals of the chancellor of exchequer we have seen. What is happening regarding the solution to the eurozone crisis because of the coalition government in a very powerful European zone we are seeing. Therefore, a coalition government in a multiparty democratic system, it is time consuming to build up the consensus.
Q: That is right but we have now been doing it for almost two to three years?
A: There has been some progress that we are working for model legislations. We have agreed to have the GSTN common portal. This will be used by most of the state governments which have agreed. GSTN is going to be put in operation and they will also utilize it. The Empowered Committee also recommended we have a short negative list in service tax. Therefore, in some areas we have not yet been able to arrive at convergent views. In some areas we are working and through this process we shall have to move.
Q: Will this financial year see the implementation of the GST?
A: If the constitutional amendment takes place, it is time consuming because constitution amendment in both the houses, two-third majority is required. Therefore, if it is possible, up to now we have not received the recommendations of the Standing Committee. If I get it by monsoon session and if I can get it done by Parliament then it would be possible to have the ratification by half the states.
Q: Usually you quote Rabindranath Tagore. Today you quoted Shakespeare. Why this switch?
A: In my paraphrasing, you have noted that when everything goes well, all of us enjoy collectively and there is nothing wrong in it but when the situation is bad, then the Finance Minister is called upon to inject the medicine. When the bitter medicine is to be injected, you have noticed that my prelude quotation is from the Prince of Denmark but in that area I have been rather kind and not cruel.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Finance Minister Pranab Mukherjee is easily the most sought after man in India today. After delivering his Union Budget 2012 in Parliament, he tells CNBC-TV18 that as far as petrol prices are concerned, these are decisions taken by the executive.
Mukherjee says he has chosen to take the conservative route by pegging fiscal deficit at 5.1% of GDP growth. So, for now, global events such as those stemming from the Middle East are not impacting India in a way which could see us slip into any macro economic crisis.
While he does acknowledge the precarious position that India is in, he says there is no need to panic. High inflationary pressures and the current account deficit do not have to be linked to growth, he adds.
The challenges to accelerate India's economic growth are high, yet Mukherjee believes it can be done. His proposal is to trim the government's subsidy burden. He has called for speeding the pace of economic reforms, which have been stalled by political gridlock,
Below is an edited transcript of his exclusive interview with TV18's Raghav Bahl. Watch the accompanying videos for complete details.
Q: In the two hours of your speech, I did not get an answer to this one very short question. Why have petrol prices still not been increased?
A: As far as petrol prices are concerned, it has already been deregulated; I am talking of petrol price deregulation which was done last June.
Q: Deregulated in form?
A: Therefore, there are two routes available to adjust petrol prices - one route is budgetary route and the other route is through the administrative mechanism route. If you look at petrol, diesel, kerosene and LPG prices it was deregulated long before.
Q: They have not been behaving in a deregulated manner?
A: That is for the executive to decide. It is not a policy decision but an executive decision which has to be taken.
Q: If the companies which are suffering so much had the freedom to increase they would have increased by now. Clearly, the principal shareholder, which is the Government of India, is not allowing them to increase and the single biggest burden on your Budget is fuel subsidy?
A: I am not disagreeing with that. That's why I am saying that for many of the issues, I have clearly laid the roadmap for what has to be done. When I am talking of pegging subsidy at 2.2% of GDP for the current year and in the next three-years to bring it down to 1.75% of the GDP that is the objective and I will do it. It has to be done through executive actions. I have never said that it will not be done through executive actions.
Q: Are we then likely to see diesel prices and fertilizer prices being raised? You have laid down a very ambitious target - 0.5 percentage points of the GDP this year itself. What is the roadmap ahead?
A: It is not very ambitious. Even your present level of subsidy is around 1.89% or 1.91% of the GDP.
Q: It's about 2.5% of the GDP this year.
A: This year it is a little more, but it is around that. Therefore, my target is not very ambitious. It is modest and achievable and it will have to be achieved through executive actions.
Q: It is an ambitious target because when prices have moved from USD 100 per barrel to USD 125 per barrel, oil companies still haven't moved. Therefore, it's not an easy thing to do. So when you say you will cut 0.5 percentage points in a year in which you have slipped on your fiscal deficit commitment by 1.6% points, isn't there understandable skepticism on how you will achieve that?
A: There should not be skepticism in the sense because if you compare it with the current year, current year economic situation was difficult. It was not assumed at the time of the presentation of the Budget for the year 2011-2012 because what was the atmosphere then? However, weak and fragile it may be, developed economies started recovering and there was a glimmer of hope.
The eurozone crisis did not assume this proportion, so in the context of that situation we presented the Budget. Therefore, the assumptions which I made during the year have changed and what assumptions I am making now is in the context of the situation which is prevailing, which is very difficult. That is why I have become conservative and I have put it at 5.1% for the current year.
I have talked about reducing subsidies thrice in my budget speech. I have expressed my intention and I have fixed the targets. Now these are to be implemented through executive actions. Your contention is - as long as you have not taken this executive action you are not going to do it.
Q: How do you convince the economy that you will do it?
A: There were certain other compulsive factors that are there that may not prevail now. Therefore, action will have to be taken.
Q: If there is a Middle Eastern crisis, then oil prices could spike to USD 150 per barrel. Has the Government of India done any stress test analysis on what you would have to do if you reach that situation because from USD 100 per barrel to USD 125 per barrel we haven't raised prices?
A: My point is very simple. Unless we take corrective measures, oil will not be available so there is no question of pricing. At whatever price you may like to have it may not be available. Therefore, corrective measures are compulsive.
Q: Therefore, you have to take them?
A: Of course.
Q: The numbers that are emerging are quite reminiscent of 1991 where your fiscal deficit, combined of state and centre is now pushing double digits, there could be an oil shock, your investment rate has become negative, you current account deficit is now at 3.6%. When the UPA government took office, there was a current account surplus in the economy. Are we in danger of slipping into a macro economic crisis here triggered by for example, a Middle Eastern crisis?
A: I do not think so because there are certain other basic macro economic fundamentals and factors which are different from what prevailed in 1991. What was the growth syndrome in the 90's? When did India have 7% GDP growth?
Q: From 1985 to 1990 we grew at nearly 6%.
A: It was 5.6% because that is the sixth plan target I took in 1991.
Q: We are at 6.1% today.
A: It is 6.9% and it is going to be 7%. Please remember that high inflation and current account deficit need not necessarily be linked with high growth rate. In the 1970's we had this, in 1980's we had it and in 1990's also we had it. The question I am addressing is that basic fundamentals are strong. Rate of domestic savings today is not 38% but it is 35%.
Q: It has gone down 600 basis points in the last five years when the rest of the growing economies were going up?
A: Please remember that in not six years, but in these four years you had two major international crises. Except for the oil crisis in 1989, did you have these types of major international crises in 1991?
Q: We had a fairly significant crisis in the Middle East at that point in time?
A: That did not affect us because India's exposure to that extent was not there. Therefore it is incomparable.
Q: I will be very assured if you are telling me that we are very far away from a macro economic crisis.
A: I am not a pessimist and I do not want to convey the message of skepticism and helplessness of India's Finance Minister. That is not my job. My job is to correct it and to point out that, yes, the situation is difficult. We shall have to tackle this difficult situation.
Q: USD 180 billion of trade deficit with just USD 300 billion reserves - these are not things which can just be wished away.
A: We had to deal with the trade deficit when we had USD one billion.
Q: You are conceding my point.
A: Let us not enter into a school debate. I want to convey this message to your viewers and that message is, yes, the situation is difficult but one need not panic. This difficult situation needs to be tackled. After the crisis of 1990, major economic reforms came and every political party sat up.
Q: So we must have that now.
A: No, I don't think so because long before that awareness would come. That is how I got the support of the major political parties on PFRDA. I got the three important legislations recommended by the Parliamentary Standing Committee consisting of the representatives of all political parties. Therefore, if somebody says there is no political consensus that it is not correct. There is a political consensus though it takes time to build up in a multi-party system like what we have but when there is a fractured mandate, you will have to live with that.
Q: There are elements in this Budget of the old command economy thinking of the government. First is the Vodafone retrospective amendment. This is the old - government is right, everyone else is wrong mindset. Then you have ONGC where you sell shares a week ago to the public and then you impose a cess. If I, as a private listed company were to do that, tomorrow morning Sebi would haul me in for insider trading?
A: I am doing it with the revised guidelines of Sebi. I would not have done it if Sebi did not revise their guidelines. Therefore, don't compare between non-comparables.
Q: I am not entirely convinced of which guideline of Sebi you are referring to which has been changed?
A: The latest amendment where the private sector and public sector have been brought at par. The corporate sector has this buyback arrangement and they are extending the same to us.
Q: I am referring to the Sebi requirement for companies to make mandatory disclosures of price sensitive information if they have it. If the government is going to impose a cess, presumably the government has been talking about this within the Finance Ministry for the last 20-25 days. When you have that information and you sell your shares to another shareholder, under Sebi law this is suppression of material price sensitive information and you are therefore subject to very stiff penalties. In fact, it is also a criminal offence?
A: No, I am not aware of the legal position of it. It is not that. The cess is within the control of the government. It is in an Act passed by Parliament via the Regulation Development Act, which empowers the government to impose the cess.
Q: What about Vodafone? What we understand is that it is a retrospective amendment?
A: It is a retrospective clarification because the Supreme Court in its judgment has stated that it is responsibility of the government through legislative mechanism to indicate clearly the intention of the legislatures and to determine.
Q: Retrospective?
A: Of course.
Q: The Supreme Court has never said retrospective. The Supreme Court has said under the existing law, Vodafone was right. If you wish now to impose a new law please pass legislation. That is what the Supreme Court has said?
A: We had issued the retrospective legislations because it has been done in the past; there is nothing new about it.
Q: That is exactly what I am saying. It is the old command style of government. You did it about 10-15 years ago in the case of ITC. Are we now back in the - big government is right?
A: I think we have done it even recently in minor areas.
Q: Just because change of retrospective laws has been done in the past does it make it right? When India is planning to become one of the front-ranking economies of the world saying that we have a rule of law?
A: This is a value judgment. That does not mean that what is within the legislative competence of the government, they will not exercise it. If the national interest is there whether somebody will treat it as a command economy or not, I am not so much enamored with the adjectives and epithets.
The question is whether the government has this right, whether the government has done anything wrong or anything beyond the directions of the Supreme Court. The Supreme Court has indicated that you correct, they did not say that you have to do it prospectively. As they did not say that you do it retrospectively, they did not say that you do it prospectively.
Q: They cannot direct the government?
A: Therefore, what they have stated we have complied with that.
Q: We understand this is a fractured mandate. The arithmetic of the Parliament is very clear. But you are the leader of the coalition and the job of managing the coalition is with you. The country has invested that responsibility in you to give and take, negotiate, engage etc, but move forward. Today, we did not see any final date yet on GST. Now it's been held over for over two years, DTC also has been deferred. When will this consensus building exercise fructify?
A: First of on DTC - the standing committee has submitted its report. I could have implemented it in the Budget if it was given three month's earlier.
Q: Will it happen shortly now?
A: They have given their report and apart from the DTC that I have mentioned, they have also given their recommendations on three legislations - PFRDA Act, Banking Laws Amendment Act and the Insurance Laws Amendment Act. So, these three plus DTC's recommendations are available and now we shall have to build it up.
Q: What about GST?
A: GST it is true that constitution amendment has not taken place, but without having people onboard with us, if you want it to be done tomorrow, it is not possible.
Q: Not tomorrow because I understand the constraints.
A: Constraints are there. Therefore, mere understanding the constraints will not help unless we can work on those constraints.
Q: But you are the government. The country has given you the mandate to lead this coalition.
A: You are accusing me of my old mindset, but this is the old mindset. I am in the government with a limited mandate and that mandate is - you carry the people with you. Therefore, as much time as it will require to carry the people with me I shall have to do that. I cannot be impatient.
Q: Every democracy in the world today is a coalition. The US president doesn't control his Senate and UK is ruled by a much unexpected coalition of conservatives and liberal democrats. Germany cannot elect its own president. The country never expects the government to solve these problems?
A: I am afraid, that for all the three examples you gave, it is not very easy for them to take the decision either. And not only that, the decision making process is also delayed. What has happened by the difference between the president, chief executive and the Senate we have seen. What has happened about the budget proposals of the chancellor of exchequer we have seen. What is happening regarding the solution to the eurozone crisis because of the coalition government in a very powerful European zone we are seeing. Therefore, a coalition government in a multiparty democratic system, it is time consuming to build up the consensus.
Q: That is right but we have now been doing it for almost two to three years?
A: There has been some progress that we are working for model legislations. We have agreed to have the GSTN common portal. This will be used by most of the state governments which have agreed. GSTN is going to be put in operation and they will also utilize it. The Empowered Committee also recommended we have a short negative list in service tax. Therefore, in some areas we have not yet been able to arrive at convergent views. In some areas we are working and through this process we shall have to move.
Q: Will this financial year see the implementation of the GST?
A: If the constitutional amendment takes place, it is time consuming because constitution amendment in both the houses, two-third majority is required. Therefore, if it is possible, up to now we have not received the recommendations of the Standing Committee. If I get it by monsoon session and if I can get it done by Parliament then it would be possible to have the ratification by half the states.
Q: Usually you quote Rabindranath Tagore. Today you quoted Shakespeare. Why this switch?
A: In my paraphrasing, you have noted that when everything goes well, all of us enjoy collectively and there is nothing wrong in it but when the situation is bad, then the Finance Minister is called upon to inject the medicine. When the bitter medicine is to be injected, you have noticed that my prelude quotation is from the Prince of Denmark but in that area I have been rather kind and not cruel.
No comments:
Post a Comment