ET Now interview - Budget 2012

Budget 2012: Govt should not postpone important policy decisions, says NK Singh, MP, JDU

ET Now: How much probability would you assign to a possibility of midterm polls as increasingly markets are discussing about it?

NK Singh: These are very hypothetical questions because right now the prerogative of whether or not to call the midterm polls entirely rests with the government in office. And it is they who will come to a conclusion one way or the other if the numbers do not add up. But, I do not think that whatever be the probabilities one way or the other, the government should be really thinking of postponing important economic decisions which are necessary for restoring the health of the economy and for the Indian economy to go forward.

ET Now: There are several state elections which are now due in next 6 to 12 months. How do you see Congress dealing with that or is it too early to take a call on that?

NK Singh: India is, unfortunately, a country where we have elections in the states almost every year. Not every state election can be taken to be a validation or otherwise of the mandate of the central government. Economic policies cannot become hostage to state elections. The government in office has an obligation and indeed a responsibility to act, what is good for the country with unmindful of the consequences of the state elections. Every year, economic policies cannot undergo this uncertainty of the electoral cycle of elections either which have just taken place or which are likely to happen.

ET Now: Expectations that good politics would overpower good economics this budget and that the finance minister may announce a populist budget, what would you say to that?

NK Singh: In my view, that would be a disaster because the macroeconomic fundamentals of the economy are fragile. Our fiscal deficit is tantalisingly close to a double digit number. Even though we may have the comfort of high reserves, the fact remains that unless important macroeconomic corrections take place, fiscal deficit comes down, subsidies are rationalised, innovative veins are found for making direct payment of subsidy to intended beneficiaries. This includes issues like petroleum oil products, urea and a whole host of stuff. Unless, revenue corrections are made to put back to excise rates on pre-stimulus stuff and unless investor confidence is restored, markets will remain fragile, macroeconomics will remain uncertain and I do not think that India will be well served by really creeping forward with the cripple growth rate of just about, could be even lower than 7% next year, somewhere between 6% to 7%. We need to get back to a high growth trajectory because our poverty compulsions cannot accept something which is lower.

ET Now: Markets want a proactive budget with emphasis on subsidy and with a control on fiscal deficit whereas the UPA allies they want a populist budget, how do you think the finance minister will be able to balance it out?

NK Singh: It can be because those are the some of the steps on fiscal consolidation, are the steps which I have mentioned in the earlier part of my comments. At the same time, we need to certainly take care of those who are disadvantaged, those who are below the poverty line by having innovative measures of either cash transfers or special oil vouchers, special fertiliser vouchers, so that the benefits of the subsidy can go to the people who should be the actual beneficiaries of these. At the same time, government needs to step up expenditure on health, government needs to step up expenditure on education and for financing infrastructure, we need to resort to market based instruments whereas what I said earlier taking advantage of historic low rates of interest which are prevalent in some of the large economies particularly in the United States and Europe. The infrastructure financing should be done, so these low cost external borrowing which would enable really the kind of stimulus and fill up in a time when draft on external capital will be somewhat more difficult and FDI flows look to be somewhat peaked.