The Finance Minister defends Budget 2008 and the Rs 60,000 crore loan waiver doled out to farmers in an exclusive interview to Business Today's Sanjoy Narayan and R Sridharan.

What is your central message in Budget 2008?

The growth story should be intact and the growth story should become more inclusive, that is the central message of this budget.

Q. How do you expect this budget to stimulate growth?
A. Well, all the evidence shows that investment-to-GDP (gross domestic product) ratio continues to be high. I have quoted the Economic Advisory from the Prime Minister which says that the investment-to-GDP ratio in 2007-08 would be 36.3 per cent of GDP. That means investment is taking. On the consumption side, we are stimulating demand. I have cut excise duties and reduced income taxes. That's going to leave more money in the hands of consumers, and that will stimulate demand and that, I suppose, will stimulate growth.

Q. There were a lot of expectations of further reforms particularly in the financial sector and the labour sector...
A. Labour reforms are not something that are addressed in the budget speech, that is something addressed by laws. We have identified a number of policy options in the economic survey. For example, we have picked up two; we are now going to implement the smart-card based public distribution system in Haryana and Chandigarh. Number two we have accepted the policy option that all CPSE's (central public sector enterprises) must be listed, they cannot remain unlisted companies. That improves corporate governance but also unlocks the true value of the company. So why do you say that we have not acted on any policy issues?

Q. The corporate sector seems to be unhappy despite the excise duty cuts that you announced.
A. They have not yet read the budget speech. There are concessions given to them on the income tax side. They should be happy that no new tax burden has been imposed on them. We have left them alone because they are doing well. They are making good profits and paying good taxes. Therefore, I felt they should be left alone to continue to do what they are doing.

Q. On the fringe benefit tax (FBT), you have made concessions in some areas, but they still feel that it is a ‘messy' complicated tax. So why didn't you get rid of it altogether?
A. We've answered that over the last three years. It's no longer an issue.

Q. On the farm waiver of Rs 60,000 crore, you have announced that you will reimburse the banks. How will that mechanism work?
A. This is money already out of the banks' hands and in the hands of farmers. It may or may not come back. Part of it is already NPA (non performing assets), part of it is overdue, part of it might become overdue. So when you write off the loan you have to provide equivalent liquidity to the bank. Over a period of time, the bank would expect to recover this loan. So we will provide liquidity to the bank, over a period of time. That is perfectly easy.

Q. Do you think this will encourage delinquency? I know you have said this is a one-time thing…
A. You cannot argue both sides. Please do stand up and be counted. Are you for the farmer or against the farmer? For 364 days in a year you say we should give relief to them, on the day we have given relief you stand up and question it. That's completely unacceptable. You have to stand up and be counted, and the UPA government has stood up and is being counted as being ‘for the farmer'.

Q. Recently, inflation has been a big concern of the UPA government. But with the tax cuts for the middle class and the Sixth Pay Commission on its way, how will you reconcile these two?
A. If you do not want the tax cut you can always pay the tax at the old rate (laughs). The point is that these slabs had not been revised for many years, they were set in 1997 and the rates had not been revised as well. It was important to revise those slabs. What I have done is in accordance of the expectations of the taxpayer, who are paying more taxes and becoming more tax compliant.

Q. So is it a reward?
A. I have always said as tax compliance improves, we will moderate tax.

Q. Why did you not consider some kind of relief on corporate tax, since compliance has improved there as well?
A. There was no need to, given the corporate tax rate of 30 per cent and the surcharge of 10 per cent for companies above Rs 1 crore. They still pay an effective tax rate of around 22 per cent. There is so reason to give a tax break to the corporates this year. They are making good profits and paying good taxes, so why fix something that is not broken.

Q. Is there anything in the budget which an “instant analysis”, as you put it, does not reveal, like how you plan to stimulate infrastructure investment?
A. We have pointed out that in the CPSE's, which are mostly in the infrastructure sector, we will invest nearly Rs 20,000 crore in 2008-09. RIDF (Rural Infrastructure Development Fund) will give another Rs 18,000 crore NELP will attract between $3.5 billion to $8 billion. Roads are being provided Rs 12,966 crore. In telecom, investment is taking place, which does not require any further stimulus. In ports investments are taking place. In steel all the majors are investing huge amounts of money–Tata, Jindal, Essar, Mittal, SAIL. That is why the report says the investment-to-GDP is 33.6 per cent. So why assume that investment (in infrastructure) is not taking place?

Q. While you announced a lot of allocation for health and education you also mentioned about implementation. In the last four years, what sort of progress have you seen on implementation and accountability?
A. There has been some progress, but progress also means that by concurrent evaluation and external evaluation and end user evaluation. Therefore, we should continue to implement these schemes even while continuing new schemes. That is why I have announced a pension plan scheme which will be supported by a Management Information system.

Q. But are you happy with the progress of the implementation…
A. My views are mixed here. Some programmes are being implemented well all over the country, some schemes are being implemented well in some parts of the country. The experience has been mixed, therefore, my feelings are mixed.

Q. What about the flagship programmes?
A. As I said, my impression is mixed. For example, NREGS (national rural employment guarantee scheme) has been very successfully implemented in my district, but some reports said that in Orissa there have been problems. Some programs have been implemented well throughout the country. Therefore, the ministry concerned has a lot of work to do; it has to become a lot more alert.

Q. On the social sector you have increased outlays handsomely but when you go down to the ground it seems that people are not investing properly?
A. Ask the ministry concerned. But these should come under the central plans scheme monitoring system (CPSMS) of the Planning Commission and then between the Planning Commission and the ministry concerned they will try to improve implementation.

Q. You touched upon the sixth pay commission in your speech, how will that report affect the government's finances?
A. We don't know, let the report come. Whatever the report is we will provide the money.

Q. Will it destabilise the government's finances?
A. Premature question, but why should anything destabilise the economy.

Q. Because the last time, the Fifth Pay Commission did have a major impact…
(No answer)

Q. Do you expect the commodities transaction tax to fetch you significant revenues?
A. Commodities exchanges have come of late. If you have STT (securities transaction tax) in options and futures in shares, you should have similar STT in options and futures in commodities. It is parity.

Q. Will the UPA call for early elections?
A. I have no idea, I am not the UPA leadership (laughs).