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Govt has the ammunition to tackle inflation, says Mukherjee
October, 08th 2009

In an interview with CNBC-TV18, finance minister Pranab Mukherjee talks about the economy, the contentious divestment issue, the goods and services tax, and inflation. Edited excerpts:

If I can draw your attention to what really is going on as far as India is concerned, the consensus seems to be that in FY10, we are going to grow at about 6.3%, which is the figure for the GDP and FY11 perhaps 7%. The deputy chairman of the Planning Commission seems optimistic about bettering that 7%. How confident are you about the turnaround?

It may be 7% because both FDI (foreign direct investment) and FII (foreign institutional investment) are quite encouraging. Though there is always an element of speculation in the stock market, one thing is quite clear that it had generated confidence in investors... But there are certain problems for the overall growth and that is why I have kept it at the GDP level. Suppose, if annual agricultural production is more than 2.5% then surely our GDP will substantially step up.

Since we are talking about this issue, food inflation seems to be one of the key concerns. The food inflation index is over 15%, there is very little that you can actually do given the drought situation... How concerned are you about food inflation at this point in time?

... so far as cereals are concerned, rice and wheat, we have adequate stock, therefore there would be no problem so far as supply is concerned. Supply constraints can be taken care of. Secondly, the import doors are also open, on pulses, on edible oil, on sugar, we have allowed the import... Therefore, supply mechanism and demand mechanismby maintaining those, we are ensuring that the adverse impact of high price rise it mitigated to the extent possible.

The projection seems to be that by March you could hover around that 5% inflation forecast of the Reserve Bank or even cross it and touch 6%. Is inflation your key concern at this point?

Inflation is always an area of concern to all policymakers and particularly to the finance ministers of the country because it affects the vulnerable section the most. Those sections who are indexed and their dearness allowances increase and it is adjusted, partly it is mitigated. But those who are outside that mechanism, they suffer the most.

Therefore, it is essential. For them, as I mentioned to you, the supply of essential commodities at subsidized prices through public distribution system is one of the instruments. Therefore we shall have to do that. As far as WPI (Wholesale Price Index) is concerned, I am apprehensive that it may be around 5-6% at the end of the year.

Let me also ask you about interest rates because once again there is a view that perhaps interest rates will begin to harden. What is your assessment of where interest rates are headed?

I would like to say let me talk to the RBI governor, taking all the aspects of the monetary policy, including the interest rates.

Can you tell us what the broad contours are of the disinvestment road map?

I will bring out a paper in the cabinet. And after that, when the cabinet approves it, we will spell it out, very soon.

Just a broad indication, in terms of a target that you actually hold?

I am not setting any fixed target. I only have one target and that is that the market appetite should not be overfilled and the timing should be appropriate. This is a process that is continuing. Decisions should be taken, made available. The department of disinvestment is in touch with all the ministries. Proposals are coming and we are working on it. It is a continuing exercise.

The direct tax collections, as per the latest figures, are up by about 4% or so, service tax is pretty much stagnant, customs and excise collections are lagging. What is the situation?

There has been modest growth as far as direct tax is concerned but I am not quite sure whether we will be able to reach the revised target which I have fixed. But we will be able to meet the budgetary target...

On GST, the view that is emerging now is that...(the) 1 April deadline is not going to be met. Where do things currently stand?

We always have the target date and we try to reach the target date, but those are for the implementation of the full fledged policy and not a half policy. So we are trying, the group of (state) finance ministers are meeting tomorrow (Thursday), I am also going to have a meeting with the state finance ministers by the end of this month.

I am told by the chairman of the empowered committee of state finance ministers that he is optimistic about...convergence (emerging) among the state finance ministers on all these issues.

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