Budget '07-'08: PC's post-Budget interview

TAX-MAN: Finance Minister P Chidambaram says employee stock options are a fringe benefit and must be taxed.

        

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Just a day after the Budget, FM P Chidambaram spoke to TV18 network's Editor Raghav Bahl, where he clarified that discussions on the Rangarajan Panel will start.

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Bahl: Well, that's for a variety of other reasons. The fact that ESOP is a wealth-creating measure. I do not think any country in the world taxes ESOPs at income tax rate?

Chidambaram: There are countries in the world, which tax ESOPs. And all that I have said is we will tax ESOPs. All the rest is your addition. Speculation.

Bahl: Let me ask you one question, which is strictly outside the Budget, but the country awaits an answer from you. There is a feeling that you, the Ministry of Finance and the Reserve Bank of India are working at cross-purposes as far as their understanding of how hard you must slam the breaks is.

Chidambaram: You see, the dharma of the Reserve Bank of India is price stability, monetary stability; the dharma of a government is to promote growth. As Prime Minister said yesterday, there is always a trade-off between growth and inflation. It's not that one has to yield to another.

So, when the RBI and the government consult each other — we consult them, they consult us — each one presents quite legitimately its side of the case. Until that your story is correct. The rest of your story is pure fiction that government and RBI are at loggerheads about dealing with the situation. We consult each other, we come to an understanding and then the RBI announces monetary policy changes and we check the fiscal measures.

Bahl: When you took over this government, the interest rate that the government was paying was nearly 4.9 per cent — it was in that region, maybe 5.2, but it could not be more than that. And corporates were paying 8-9 per cent. Today the government is picking up money at well over 8 per cent and the corporates today are having to borrow at about 13-14 per cent.

Chidambaram: But why? You know the answer.

Bahl: Sir, that is the reality.

Chidambaram: That is not correct, the corporates do not say that. I do not know about your company but corporates do not say that. The point is it is true that when this government took over, the top corporates were able to borrow at sub-PLR. Today they are perhaps borrowing at PLR.

Bahl: PLRs have become 12.5, 13 per cent.

Chidambaram: The reason is interest rates have indeed moved up, but please remember, in 2000-2001, home loan rates were 14 per cent.

Bahl: Are we, therefore, going back to that?

Chidambaram: No, we are not going back. This is not going back or going forward. These are interest rates, which are determined by the Reserve Bank of India by deciding the policy rates, reflecting the requirement of the economy. If today inflation is 6.5 per cent, it requires a response.

Bahl: But inflation was 4.5 per cent when interest rates were 8-9 per cent. PLR is 12-12.5 per cent on several times.

Chidambaram: The policy rate has moved up, the CRR has been increased four times.

Bahl: So is the Ministry of Finance in consonance with such a conservative policy?

Chidambaram: I have always supported the RBI's monetary management.

Bahl: Surely sir, you couldn't have supported a policy which 24 hours later hikes the CRR when 24 hour before you were telling the banks don't raise home loan rates.

Chidambaram: Please, you have got your sequence wrong. I told the banks that RBI has increased a risk weight on four assets, not including housing. It was increased on four assets, not including housing. And the RBI statement underlined the fact that housing was not included. So I told the banks — because the meeting had been scheduled earlier — that the RBI had increased the risk weight for four assets only, housing is not included, so please do not tweak the rates for housing. What is wrong with that?