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Extracts of Finance Minister’s reply in Lok Sabha to debate on Union Budget 2009-10

On Fiscal Prudence

1. In respect of the macroeconomic policy, it is essential that we come back to the path of fiscal prudence without compromising our growth momentum as soon as the current economic circumstances permit us to do so. We cannot lose sight of the fact that much of our recent success in raising our growth trajectory has come about due to adherence to FRBM targets, both at the Central and State levels. Fiscal prudence is critical for maintaining a stable balance of payments, moderate interest rates and steady flow of external capital for corporate investment.

2. As I had indicated in the medium term fiscal policy statement, required under the FRBMA and placed as a part of the budget documents, the fiscal deficit is expected to come down from 6.8 per cent of GDP in 2009-10 (BE) to 5.5 per cent in 2010-11 and further to 4.0 in 2011-12. Correspondingly, the revenue deficit is expected to decline from 4.8 per cent of GDP in 2009-10 to 1.5 per cent in 2011-12.

3. There are a number of factors that will make this possible:

(a) the Sixth Pay Commission arrears would have been paid out in 2009-10 with no further liability on this account in 2010-11;

(b) the increase in plan spending as a part of the implementation of the fiscal stimulus has been in the nature of front loading of the plan expenditure approved for the Eleventh Five Year Plan. With some effort we should be able to align it with our future requirements;

(c) much of the decline in business and corporate tax collections is cyclical and will tend to be reversed with growth expected to pick-up from the second half of the current year; and

(d) the introduction of GST in 2010-11 is expected to bring a sustained rise in tax revenues.

On Government’s Borrowing Programme

1. Serious concerns have been voiced on the implications of the Government’s borrowing programme undermining the cost and the availability of funds for the recovery in growth of private investment. The net market borrowing requirement for 2009-10 through GoI dated securities works out to Rs. 3,97,957 crore. The actual net borrowing through Government securities in 2008-09 was Rs. 2,21,472 crore. Notwithstanding the increased borrowings in the current year, the cost of borrowing has been significantly lower so far.

2. During the first half of 2009-10, the Government market borrowing of Rs.2,41,000 crore of dated securities is being supported by RBI through its Open Market Operations(OMO). It has to be understood that OMO of RBI should not be confused with monetisation of government borrowings and that the Government has no intentions of monetising its debt.

On People’s Participation in Public Sector Units

1. After I presented the Budget on 6th July 2009 a number of news items have appeared in the media commenting on my so called silence on disinvestment in Central Public Sector Undertakings.

2. I would like to mention that the President’s Address to the Joint Session of both the Houses of Parliament on 4th June 2009 had clearly spelt out the policy of the Government on disinvestment, i.e, Government would develop people-ownership of public undertakings while ensuring that Government equity does not fall below 51 per cent and the Government retains the management control of the company. I reiterated this in my Budget speech. It is our intention to enable the PSUs to benefit from techno-managerial efficiencies and become more competitive in the market. My Ministry has initiated discussion with other Ministries and Departments for identifying the public sector undertakings where a portion of Government shareholding can be sold and for issue of fresh equity by the public sector undertakings to meet their fund requirements. The details are being worked out and would be announced in due course.

On Financial Sector

1. We all know that the global financial crisis did not affect Indian banks or financial market directly, but it did expose a number of weaknesses in our financial system. The events over the last two years and the outflows and inflows of FII equity more recently, has brought home with renewed force the volatile nature of certain private capital flows. Though such flows provide critical risk capital with long-term benefits to the economy, the volatile nature of these flows has a negative impact on investments decisions. We have to create the necessary policy environment that helps in addressing such concerns.

2. There are other issues in financial sector, such as those related to the development of long-term debt markets and deepening of corporate debt markets for improving resource flows to infrastructure investments; improving future markets for better price discovery and regulation; and overcoming institutional hurdles to better intermediation. These will have to be addressed in order to make the sector more competitive with an efficient regulatory and oversight system, which is responsive to the needs of high growth economy.

On Investment Environment

The reforms of the 1990s by liberalizing investments across sectors created a competitive environment in which Indian entrepreneurship could flourish. The fruits of these reforms emerged gradually in the form of rising output and employment and a significantly higher growth from 2003-04 onwards. There is sometimes a perception among financial and other investors that in the recent past, Government has been slow on policy reforms. I intend to look into all issues, legislative or otherwise necessary to carry forward the reforms to their logical end.

Conclusion i) The focus of our policies is Aam Admi. But we are equally aware of the fact that wealth has to be created before it can be distributed.

ii) I have faith in the determination of the people of this country and the resilience of the Indian economy which has proved wrong the Cassandras of doom earlier and will do so again.

iii) Let me conclude by quoting Smt. Sonia Gandhi, UPA’s Chairperson and Congress President, “Let us surprise Professor Amartya Sen by giving up our favourite trait of being ‘unendingly argumentative’ and for a change let us be ‘effectively collaborative’.”

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