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Budget '07-'08: PC's post-Budget interview
Published on Thu, Jan 31, 2008 at 17:25, Updated at Sat, Feb 02, 2008 in section
Tags: Union Budget 2008, Specials
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.
Bahl: What is widely perceived to be the situation is that you believe, or it is the assessment of the Ministry of Finance, that in the RBI, we have a situation where it is an over-dependence on monetary policy when the problem is actually in the supply side?
Chidambaram: Please, RBI has only got monetary policy.
Bahl: But it's over depending on that instrument?
Chidambaram: I do not agree. RBI, I think, has a duty to be ahead of the curve. RBI has to anticipate the inflationary situation and take measures. RBI, in fact, has adjusted the repo rate four times and CRR four times in order to contain inflation. Despite that, inflation has moved up to 6.5. The reason is supply side, which RBI has no control over.
Bahl: And the 13-14 per cent interest rates could hurt economic growth?
Chidambaram: If they persist for a long period, they could hurt economic growth. That is why every effort is being made to moderate inflation in the medium term, so that these high interest rates do not persist.
Bahl: We are 4 per cent points away from that era of 18 per cent interest rate and 3 per cent GDP growth; we are not very far away?
Chidambaram: You are exaggerating. In 2000-2001, not in the distant past, 48 out of 52 weeks, inflation was over 6 per cent. In 22 of those weeks, it was over 7 per cent, in 12 of those weeks, it was over 8 per cent.
Bahl: But see what the economic growth rate then was as well?
Chidambaram: Economic growth rate that time was 4.5 per cent. Therefore, they had low growth and high inflation and I wonder what question you put to them at that time.
Bahl: That is in the past, but I am saying you could be seriously headed towards that situation again. Because you have got high interest rates, you have got high inflation only high growth and that comes down, the equation is the same?
Chidambaram: Why do you assume that it will come down? I believe there is a structural shift in the growth cycle. It is not a cyclical shift. So does Raghuram Raja, so does Steven Roche, who met me.
We believe there has been a structural shift, thanks to the engines of industry and services firing in all cylinders. We have a situation of high inflation today, not as high as it was in 2000-01. Still much lower than 2000-01. We are, therefore, taking steps in the fiscal, monetary and supply side to moderate that inflation. If we succeed in moderating the inflation, interest rates will decline.
Bahl: That was my question, how hard are you going to slam the breaks?
Chidambaram: I can only answer in the language of Prime Minister. We need to moderate inflation without hurting growth. It is a fine balancing act, but I am sure we can manage it.
Bahl: And you are saying the RBI is doing that fine balancing act?
Chidambaram: RBI is consulting the government before taking any steps and it will be untruthful to me to say RBI does not consult the government. RBI is consulting the government fully and comprehensively.
Bahl: And you are comfortable with the policy stance that RBI has adopted?
Chidambaram: The final policy stance adopted by RBI has the full support of the government; let me make that very clear to our viewers.
Bahl: And you will see a moderation in interest rates - that is the expectation and assessment of Finance Minister.
Chidambaram: Once inflation moderates, interest rates also will moderate.
Bahl: Down to what level?
Chidambaram: That depends on how quickly and to what level inflation moderates.
Bahl: You must be having some assessment?
Chidambaram: If inflation goes back to 4-5, interest rates also will go back to where they were.
Bahl: To about 8-9, prime lending rates?
Chidambaram: It should go back to at least between nine and 10.
Bahl: Sir, on that very hopeful note, thank you very much for joining us.
Chidambaram: Thank you.
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