Budget 2012: Pranab Mukherjee's 1st exclusive interview after speech

Shortly after presenting his Budget 2012-13, finance minister Pranab Mukherjee spoke to CNBC-TV18's Siddharth Zarabi about the constraints under which this exercise was taken.

In a very candid interview, Mukherjee spoke about the latest political development that happened too close to the big event, uncertain global scenario and impediments in the domestic economy.

Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying videos.

Q: The overall climate that we have seen in the past few days - the difficult circumstances that you have faced on the economy side both domestically and internationally as well as the political climate has soured over the past few weeks and days - must have made your task very difficult.

A: The latest political development has happened suddenly. By that time, the exercise was over. But the other issue, which you have raised, is important. The overall global situation and domestic situation are not very conducive.

While formulating my Budget proposals, I had to take into account three major areas. One, how to bring back the economy on higher growth trajectory was the primary consideration. Second, how to moderate the near double digit headline inflation, which doggedly pursued Indian economy for almost two years. 

Third, the fiscal consolidation, which I believe is absolutely imperative to ensure higher and inclusive growth. We cannot allow fiscal profligacy. Therefore, these are the three major constraints which we had to keep in mind, while formulating the Budget proposals.

It was a difficult task. If you look into my entire exercise, you will find that I have given clear indications how I am going to come back on the path of our growth trajectory, how to make the fiscal consolidation and at the same time how to address the problems, particularly from the supply side constraints by removing those constraints either by higher allocations or by focusing at it. So, that is the overall environment in which we had to formulate.

I had Euro zone crises at the back of my mind. There is no solution feasible in near future. Recovery of USA has begun, but still it is halting and fragile. Same is the story with Japan. Therefore, one of the important aspects, which I have also emphasised, was the domestic demand driven growth strategy, how to enhance the purchasing power of the rural population which will generate adequate demand, which will act as a driver for the growth.

Q: Let us come to the point of fiscal consolidation. Clearly, last year's fiscal projection that you had made with based on certain assumptions, of which oil was certainly not in your control at all. That took away some sheen of the fiscal deficit numbers. You have now projected a 5.1% fiscal deficit for the next fiscal year, assuming a certain level of oil prices, around USD 115 per barrel. Is there a downside risk from crude oil supplies as far as the basic fiscal projection and math of the central government is concerned?

A: So far the budgetary exercise is concerned, I have not addressed one of the major areas, which is causing a substantial erosion of resources by enhancing the subsidy. Therefore, the resources, which could have been deployed in other areas, are to be diverted there. It happened last year because my assumption was it would be USD 90 per barrel.

Now, I am pretty sure that it is not going to be less than USD 115 per barrel. On the one hand, I am working on the additional resource mobilisation. Second aspect on which I have emphasised from the expenditure control, I have bound myself by bringing it down to the level of 2% of GDP, which is the current level of subsidies and to bring it down to 1.75% of the GDP in the next three years and also to have a three-year fiscal target.

The fiscal statement, which I am committed to present to Parliament, there will be three years rolling target. That will provide us an opportunity to make a correction in the midcourse, as and when needed. But at the same time, these issues are to be addressed, which I could not address. These issues cannot be left uncovered.

Q: On the subsidy control side, you have clearly made a very marked departure by saying that certain kind of subsidies will remain capped in some ways. That is the sense we got from your speech. Beyond that, you have also spoken about additional resource mobilisation. Again, on the oil subsidy front, do you anticipate a major problem because in the current year you saw oil subsidy going up by Rs 45,000 crore? What is the scenario likely to be?

A: We shall have to address the issues. Collectively, we shall have to address these issues. Budgetary exercise is not the only way we can address it. But we shall have to address these issues. When and how? Ofcourse that is a matter to be decided.

I am also going to address to the political establishment of the country because collectively we shall have to think of it. It is not the question of this party or that party because it is going to affect all. Therefore, at some point of time, we shall have to recognise this fact. Continuous efforts are needed. What type of action, what type of road map I am thinking, I am just not spelling it out, but shortly we shall have to do that.