Patience please: Chidambaram

Chidambaram says cutting the current account deficit is tougher and ‘can only be done if we are able to export more, or import less, or do both,’ with the emphasis being on boosting exports. Photo: B. Mathur/Reuters

Live Mint ;Sahil Makkar ; Fri, Mar 01 2013. 01 17 AM IST

New Delhi: Finance minister P. Chidambaram addressed a press conference after presenting his eighth budget in Parliament, saying the government would follow up on steps taken in the annual fiscal package with “another set of measures and decisions”. “There are many thing I would have liked to have done, but one has to be patient and wait till the appropriate time,” Chidambaram said. He said the main thrust of the budget was to signal to the world that India was on a fiscally prudent path and serious about cutting the fiscal deficit. But cutting the current account deficit is tougher and “can only be done if we are able to export more, or import less, or do both,” he said, adding that importing less was not viable given India’s dependence on oil imports, and the emphasis must be on boosting exports. On economic growth, he said the immediate goal was to accelerate it to a pace above 6%, which would signal that the economy is back on the path of recovery. Edited excerpts from the press conference:

On the credibility of the fiscal deficit estimate:

The numbers are absolutely credible. We have worked on the numbers in the last couple of months. The fuel subsidy bill is likely to be smaller because we are correcting diesel prices and we have capped LPG (liquified petroleum gas). Therefore, there is every reason to believe the bill will be lower this year.

Similarly, the food subsidies, the normal food subsidy is expected to be Rs.80,000 crore and then taking into account the Food Security Act, adds another Rs.10,000 crore. If the Food Security Act requires more money, we will definitely add more money. But, that is after the Food Security Act is passed. Once it is passed, we can do our sums again.

As far as tax revenues are concerned... if we assume that next year the economy grows above 6%, there is no reason to assume tax revenues will grow at a lower rate than 16%-17%. We have assumed 18%. The extra one comes from the additional resource mobilization. We have stated that on the direct and indirect taxes sides, we will get around Rs.18,000 crore of additional resource mobilization. If you add the rates, it makes up the 19% growth rate in the tax revenues.

On concerns over the tax treatment of investments routed through Mauritius and other countries with bilateral tax treaties with India:

The section that you are referring to has two parts. One that deals with GAAR (general anti-avoidance rules), which is not relevant to the present as GAAR will come into being in 2015.

The other part is already there and an explanation has been added. It’s possible in that there is a certain ambiguity due to the wording. Let me clarify. DTAA (double taxation avoidance agreements) have two major conditions. One is of residency and the other is that the person must be the beneficial owner. For example, in the case of interest income and dividend income or royalty, you must be a resident and also the beneficial owner to claim the benefit. Same for royalty. In some case, either one or both will apply. All that the clarifications say is that if you produce a tax-residency certificate, that is a complete answer for residency, but the beneficial owner is still not certified. That is a separate requirement that needs to be satisfied.

I have not written the treaty. They have been written by different administrations at different times.

As far as beneficial ownership is concerned, that is a matter of fact and law.

On expected earnings from the auction of spectrum:

We have taken note of the fact that this year the spectrum auction did not yield the amount that originally was assessed. Last year they thought it will give you Rs.40,000 crore, but it has actually given a very paltry amount of a little over Rs.1000 crore.

But for next year, we have got a written statement from the department of telecommunications, which divides the spectrum revenues into licence fees, revenue-sharing and the one-time fee... and the quantity of spectrum that they will auction.

It’s after they have given us in writing how the cash will flow (that) we have taken this amount into account, but if there are any unexpected developments we’ll factor them in later. But the spectrum will be auctioned. May not be auctioned in the second round, but sometime or other it has to be. If a serious telecom player wants to remain in the Indian market, he must acquire spectrum. So for the present there’s a lot of uncertainty, but I’m sure it will be resolved.

On timelines for introduction of the proposed goods and services tax (GST) and direct taxes code (DTC):

On DTC, we have set a deadline. I hope to bring back the Bill to the Parliament by the end of the budget session. As far as GST is concerned, I cannot lay down any deadline. It depends on the state finance ministers. I have gone by their minutes. They talk about the constitutional amendment, a GST model law and compensation. To show my commitment to GST, I have set aside Rs.9,000 crore as the balance of the first instalment, so now the ball is in their court. I hope to be able to meet them shortly and, if they are willing to take one step forward, we are ready and willing. If we can forge a consensus, we should have a GST constitutional amendment draft and a GST bill draft in a few months. On Vodafone, we can’t discuss case-specific matters. The amendments that were introduced by my predecessor may have arisen as a result of a judgement of a court in order to clarify an earlier law of Parliament.

Vodafone has now offered conciliation and that matter will go to the cabinet. If they accept, then the matter will go to conciliation, as different from arbitration. The larger question of how retrospective laws must be applied in given places, that’s a larger question, it has nothing to do with the Vodafone issue.

On cash transfers and subsidies:

What we are saying is there are three pillars to the DBT (direct benefit transfers), one is a digitized beneficiary list, district-wise, throughout the country, about 600-700 districts. We need these under each scheme. The second pillar is the bank account. For each beneficiary, there must be a bank account. The third pillar is the Aadhaar number.

For most schemes, the first pillar is more or less there, but we have now told the ministries and the departments, “please prepare lists for all districts”. The second pillar is rather easily doable. Once the list is available, the banks have assured me they will immediately open bank accounts for those names on the list. It is the third one that was lagging behind, but they are catching up.

Once these pillars are in place, more and more of the benefits will be transferred, but as I see it, the food subsidies and the fertilizer subsidy will be among the last subsidies to be transferred because they are more complicated and there are many more beneficiaries. Our intention is to transfer all the benefits through DBT, but in my view food and fertilizer will come at the very end.

On tax surcharge imposed on the rich:

Our tax rates are comparable to other countries. The surcharge would be imposed for one year and that surcharge adds a small cost not to somebody who is already making a Rs.10 crore profit. So I don’t think it’s a huge burden and I am pretty sure they will pay cheerfully as it’s only for one year.

On increased expenditure:

Demand is boosted by government expenditure, but government expenditure has both good and bad sides.If there is too much government expenditure, it boosts aggregate demand and leads to inflation. And if it is too little, then it affects growth; so skill is in finding the right amount of government expenditure. The year going by has already been done, we have already had low growth, but what you should now look at now is whether we have budgeted adequately for the next year. We have a total budget of over Rs.16 trillion and, of that, Rs.5.50 trillion is plan expenditure. And for the next year, it is adequate.

On possibility of extending the surcharge:

Because revenues are under pressure this year, we have said we need to raise revenues for this year. We are raising revenues for 2013-14. But if in this year, growth picks up, close to 6.2% or 6.3%, then it will give us adequate revenue and then we don’t need surcharge. The surcharge is required only as a bridge.

On transfer-pricing issues:

As you can see in the OECD (Organisation for Economic Co-operation and Development) document, it says we cannot allow tax bases to be eroded, nor can we allow international companies to distribute profits in different jurisdictions. If OECD countries can talk about erosion of tax bases, we should also be concerned. As a developing country, we must protect our tax base, otherwise where will we get tax? We have a system of law in the country and individual cases have to be decided on merit.

In one particular case of Shell, I have decided to refer the matter to the attorney general to interpret a section because it talks of a large amount of money.... We are not making any pre-judgement in our tax liability.

On differentiation between foreign institutional investment (FII) and foreign direct investment (FDI) in Indian companies, and what constitutes a beneficiary donor:

As far as FDI and FII are concerned, what I said today is an internationally accepted practice. Below 10% is treated as FII, and above 10% as FDI. Broad principle is in line with the international practice. We will appoint a committee to see how broad principle should be applied in various sectors and committee will come back.

Beneficial owner must be the person who is entitled to benefit of the gain. For example, I can have an agent and I can invest through an agent and dividend cheque in name of agent. The agent may be the resident of a particular jurisdiction, but the beneficial owner is somewhere else. All DTA (double taxation avoidance) agreements clearly have two conditions—residents and beneficial owners. In some cases, it is both. In case of royalty, it is both. In case of interest also, two conditions. There should be a clear distinction between resident and beneficiary.

On Samajwadi Party’s opposition to the budget:

Budget will pass. No need for concern. Finance Bill will also pass. Let there be a debate in Parliament. Let objections come before Parliament. I will answer objections but am confident that budget will pass. Let them say it on floor of Parliament and we will answer why the budget is not anti-poor.

Shauvik Ghosh, Cordelia Jenkins and Neha Sethi of Mint contributed to the story.