All political parties agree on farm debt waiver: PC

HARD TALK: P Chidambaram explains the finer nuances of the Budget in an interview to Raghav Bahl.

        

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Keywords: Loan Waiver , P Chidambaram

Raghav Bahl: What about food? We had a problem last year.

P Chidambaram: We will import food if necessary.

Raghav Bahl: Is there a plan in place to do that?

P Chidambaram: Yes, of course. If necessary, we will import food. But the idea is to increase production. And I have disclosed in my speech that the Ministry of Agriculture expects an all-time record at least in five crops. There are some which are not doing so well. But if necessary, certainly we will import food.

Raghav Bahl: One major thing which went against the grain of a feel-good Budget was the change in the short-term capital gains tax.

P Chidambaram: Who is affected?

Raghav Bahl: Well, certainly sentiments get affected and people are paying short-term capital gains tax.

P Chidambaram: But who is affected? There is a person who is buying and selling in the short term. He is making a gain. He is not making a loss. If he is making a loss, he doesn’t have to complain. He is making a gain.

In many countries, they don’t make a distinction between capital gains and income. In many countries, there is no distinction between short-term capital gain and long-term capital gain. For a historical reason, we have got this difference between gain and income, we have got this distinction between short-term and long-term. And they were paying 10 per cent. It will be equated with the DDT rates.

Raghav Bahl: But the question really is three years ago, you yourself put in the structure.

P Chidambaram: No, this structure has been there for many years. I abolished long-term capital gains tax.

Raghav Bahl: And the markets and the international community thought that this is now a stable regime.

P Chidambaram: No. The context has changed. Three years ago, the market was virtually dead. We had to revive the capital market. We had to bring back retail and interest in the capital market. Today, the Indian market — at least till it was 20000-21000 — is extremely attractive. It is giving returns higher than in any other kind of assets.

And, therefore, in this point of time to equate the short-term capital gains tax with the dividend distribution tax makes sense. If I hold a share and receive a dividend, I pay 15 per cent. If I sell the share and make a gain, I should pay the same 15 per cent.

Raghav Bahl: I think what it has done is brought into question the regime that was put into place. Now people are saying you may also get a long-term capital gains tax next year or from any other Finance Minister.

P Chidambaram: See the point is these are not carved in stone. All that we offer to the investor is moderate and stable tax rates. But that doesn’t mean tax rates wouldn’t be jigged, in which case I shouldn’t have changed the slabs of income tax either.

Raghav Bahl: I think the expectation was that we now had a system in place. I think with the change, that expectation gets into question.

P Chidambaram: I think you should now expect that DDT and capital gains will bear the same rate of tax.

Raghav Bahl: Sir, my last question. And this on five years after having managed the economy, one expectation people had that when we have people like the Prime Minister and people like you — who are experienced economic administrators — that when you exit you will not leave us with that much big government. We still seem to see a lot of big government, a lot of micro-management, that is still getting done off the economy.

P Chidambaram: The Central Government looks bigger because the state governments want the Centre to bear the burden of many many programmes — agriculture, primary education, primary healthcare. Under the Constitution, these are the subjects reserved with the state governments.

But because states are not willing to bear responsibility as much as they should in my view and because there is uneven progress in the states — and some states are falling behind very badly — the Centre had to intervene. That is why we have over a thousand schemes which are Centrally funded. Therefore, the government looks big. But if the state governments are willing to take more responsibility, I will be very happy to shed this responsibility.

Raghav Bahl: But big government also in the sense of a government which still wants to micro-manage.

P Chidambaram: Such as?

Raghav Bahl: Look at the plethora of rates you have on FDI and FII. That it will be allowed 20 per cent here, 26 per cent there, 38.5 per cent somewhere.

P Chidambaram: Life was indeed simple when we banned FDI. Point is we are a closed-door regime. We are opening the doors and the windows. We are opening it as fast as we can. But there are problems. There are political objections. There are domestic sensitivities. There is a need to protect domestic industry. So when we open some door, we cannot open it fully. When we open some window, we have to open it partially. That looks to you like micro-management.

Raghav Bahl: But do we need to have so many slabs?

P Chidambaram: We don’t.

Raghav Bahl: I can have one more than 50 and one less than 50.