As the Budget for 2012-13 approaches, Mr Ashok Jha, Chairman of MCX Stock Exchange, is in favour of bringing rates for excise duty and service tax to the pre-crisis levels.

A 1969 batch Indian Administrative Service officer and former Finance Secretary, Mr Jha also pitches for a tough decision on subsidies.

Excerpts from the interview

As former Finance Secretary, what is your assessment of the Government's current fiscal position?

To call the current fiscal situation precarious would be an understatement. The target for reduction in fiscal deficit is unlikely to be met by a long shot Government borrowings have already exceeded by more than Rs 93,000 crore. The much lower than anticipated tax revenues, as well as proceeds from disinvestment and ballooning subsidies on account of petroleum products, estimated to be more than Rs 1 lakh crore beyond what is budgeted, are likely to be major contributing factors.

Fiscal consolidation is the buzz word, but how do you see that happening?

There is no getting away from fiscal consolidation. In simple terms, this can only happen if the mismatch between revenues and expenditure is corrected. Taxes and other revenue sources need to be augmented and expenditure controls need to be put in place so that the growth momentum is not adversely affected.

Do you feel this is the right time to go back to pre-crisis rates for excise duty and service tax?

Excise and service tax rates were lowered as a part of the stimulus package to counter the global financial crisis. Considering that we weathered that storm reasonably successfully, there is no reason for not bringing the rates back to the pre-crisis levels. This would be helpful in reducing the fiscal deficit and also in assisting harmonisation with Goods and Services Tax when it is introduced.

Do you believe the Government will be able to cut subsidies, especially as it proposes to implement the Food Security Act?

The three main subsidies relate to food, fertiliser and fuel and there are no easy answers to reducing these. But, fiscally we are not in a situation where we should shy away from tough decisions. Even in the petroleum sector, there is no reason why we should continue to subsidise cooking gas or diesel for private car owners.

Fertiliser subsidy reform was supposed to have happened in 2007-08, but there is very little movement on the ground.

As many studies have shown, subsidies on food are very poorly targeted. So, the problem with the Food Security Act is not what it sets out to do, but that its objectives will not be attained unless the delivery mechanisms are overhauled.

Coming to commodity trading, there is a view that a Commodity Transaction Tax (CTT) should be levied. Your comments.

I am not sure how people outside the Budget-making process can be privy to the imposition of CTT or any other tax for that matter! The Finance Minister, in his Budget speech in 2009, abolished CTT on the advice of the Prime Minister's Economic Advisory Council. The decision was, no doubt, based on the fact that nowhere in the world (except Taiwan) was there such a tax.

How will trading be affected if such a tax is levied?

Going by Taiwan's experience, trading will shift to other countries. In Taiwan, the total tax collected from CTT in 2007 was a mere $17,071.

CTT is being discussed as an alternative to rationalisation of Securities Transaction Tax (STT). Is it logical?

CTT is entirely different from STT. Those who bat for the imposition of CTT are basing their views mainly on the argument that STT has led to a fall in equity futures and a corresponding rise in commodity futures. This is factually incorrect. Apart from market dynamics, the slower growth in equity futures is due to the huge increase in equity options. Besides, commodity exchanges are not on a par with stock exchanges the former assist in risk management as well as in price discovery.

Bombay High Court is expected to deliver its verdict on your proposal to set up a stock exchange. If the decision is in your favour, how much time would it take to make it operational?