FT: What lessons has India drawn from its resilience amid the global financial crisis?

Mukherjee: One lesson, shared by other countries, was that there should be some sort of watchdog to watch developments all over the world so the type of sudden crisis that we have confronted in 2008 doesnt happen again. In my budget, I have indicated the need for some kind of body. It will not affect the functioning of the central bank and the regulators. But despite the regulatory role of the central bank, there should be some sort of overarching body to review the situation so if there is a symptom of a major crisis in the financial system it would be addressed accordingly.

FT: What is it about Indias growth that has made the economy so resilient?

Mukherjee: One factor that contributed to our growth is that when we injected money through the stimulus package our objective was to create domestic demand. We realised that depending on the revival of demand in the external sector may take time. We injected money into the rural economy. People got money in their hand. We generated demand. If you look at the trend of manufacturing sector during this period, consumer goods and durable goods have increased. The second characteristic was the basket of growth: agriculture, manufacturing and the services sector. The services contribution has been substantially higher. Manufacturing has started to pick up. Agriculture. Unfortunately we have made massive investment in agriculture and in this budget I propose to do so also. But last year we had the problem of the deficient rainfall. Still Indian agriculture relies on rainfall. Sustained irrigation facilities are available to little more than one third of agriculture.

FT: Is the fiscal stimulus a one off or a structural part of the Indian economy?

Mukherjee. The massive stimulus which we provided in form of tax concessions for a temporary period cannot be repeated for a longer span of term. But structural changes through the major reforms in tax structure through direct tax code and General Services Tax are required. These major tax reforms will be introduced from 1 April next year.

FT: Can the National Rural Employment Guarantee Act and other direct rural subsidies continue?

Mukherjee: Direct subsidies we will provide through certain programmes. We would also like to bring subsidies directed to targeted groups. Everywhere costs of intermediation are very high. One reason for high food inflation apart from the supply bottleneck is the high cost of intermediation from the farm gate to the consumers plate.

FT: Can you be more aggressive with reductions in fuel, fertiliser and food subsidies?

Mukherjee: We will have subsidies targeted both for consumption for certain sections of the people and also provide subsidies for production. Subsidies toward interest subvention is to encourage the producers by reducing the interest rate. The banks are unable to have that level of interest rates so they require a subsidy. For some consumers, we are expanding the social security instruments. We are also ensuring income through wage increases. For instance, I have raised the minimum wage to the farmers through NREGA by indexing it to the inflation.

FT: What about subsidies for fuel?

Mukherjee: We have made the beginning. As you know in parliamentary democracy we will have to be sensitive with the proposals we are introducing but this is the right direct we are moving. Ultimately, it will have to be neutralised.

FT: Are you being bold enough? Are you worried about complacency?

Mukherjee: There is no complacency. We shall have to travel a long way to the desired level of 9 to 10 per cent a year on a sustainable basis. We are fully aware that we are well below that level.

We have improved our electoral performance but the number [of seats] is not adequate to take us to further bolder steps. In our parliamentary system a simple majority is very important. We are well short of that. Our position has improved substantially from the type of coalition we had in the previous five years. But it is still short of the required magic number. That doesnt prevent us from taking the right steps.

FT: If you had a simple majority and you wanted 9-10 per cent growth what steps would you take?

Mukherjee: I would be able to make many legislative changes that depend on the support of others. For instance, the pension bill, insurance bill. These are waiting because still we cant build the required consensus among our coalition partners to get it passed by the parliament.

There are administrative measures which are possible and we are taking but here too we carry the coalition partners so we have to take their concerns into account. That is why it is being delayed. With a simple parliamentary majority, you dont have these problems.

FT: Without a parliamentary majority, how can you get to 10 per cent growth?

Mukherjee: We will be going. We will be going [to 10 per cent] because of the steps which we have taken. Look at the growth pattern. The last quarter of the preceding year was 5.8 per cent GDP growth. Then we started moving up. Third quarter was 6 per cent. The contribution of agriculture in this period was -2.8 per cent. That means that manufacturing and services have contributed 11 per cent and 7 per cent. If the negative contribution of agriculture was not there, we would have been at 8 per cent.

During the four consecutive years that we had 9 per cent growth, the rains were favourable to us.

FT: Indias growth is very uneven. What can be done to share it more widely?

Mukherjee: If we had balanced regional growth, growth would have been much better. Some states are doing reasonably well. If it was evenly spread and particularly more populous states like Uttar Pradesh and Bihar things would have been better. We have some institutional mechanisms that address these issues. There is support for weaker states so that they can come out of their weakness and be on par with stronger states.

FT: What would be the impact of another poor monsoon?

Mukherjee: The basic fundamentals of the economy are strong. Even when weather conditions become erratic they will not affect agricultural production to the extent which is used to 30 years ago. Our total grain production was 234m tonnes in the previous year. The adverse monsoon has affected production to maximum 15m tonnes. Two major states which contribute substantially, they have protected crops by making groundwater irrigation possible. This kind of technology was not there to give protection from drought before.

But if both international financial crisis and domestic production difficulties coincide, then the problem is a little more aggressive.