Montek Singh Ahluwalia, renowned economist and former deputy chairman of the Planning Commission, is a key figure in country's economic reforms from the early 1980s onwards. He held several important positions including special secretary to the Prime Minister (1988–90); commerce secretary (1990–91); secretary, department of economic affairs, ministry of finance (1991–93) and finance secretary, ministry of finance (1993–98). Ahluwalia earned his B.A. (Hons) degree in New Delhi and his M.A. and M. Phil. degrees from Oxford University. He has published a number of articles on various aspects of the Indian economy in academic journals and was awarded Padma Vibhushan for his public service. According to Ahluwalia, the proposition that coalition governments cannot deliver good results is simply not true as we had the best reforms during a coalition government in 1991. Slamming politicians for devising sophisticated policies during the election time, he said governments should have clear sense of policies that they are going to follow.
Q: What is the legal limits of vote on account and interim budget? Can anything as big as a Rs 2 lakh crore programme be announced in an interim budget?
A: I don’t know the legal position on this. The tradition is when the government is entering into an election year, the budget is an interim budget and so you don’t need to discuss very much questions of feasibility and so on. Since the election will take later, probably the election notification will not have been issued. I don’t know legally whether you can present a budget and then simply go into the election.
The problem is that if you do present a budget, then that budget will have to go through very detailed examination about feasibility.
I have no idea what the government intends to do on that.
Q: But in 2014 vote on account and interim budget, the then finance minister P Chidambaram had said that he proposes certain tax tweaks, but caveated it by saying if the same government came to power?
A: I remember in 2009, we were just getting out of the crisis, I had recommended then to the finance minister Pranab Mukherjee that we cannot go into a budget in the middle of a global crisis and not let anybody know what you are going to do. So, even though the budget itself simply repeated the previous year’s numbers, Mukherjee said at the time of the regular budget that it was his intention to increase planned expenditure by a certain amount. Now that was not part of the budget proposal, but it was kind of declaration of intent. So, I suppose governments could always do that, but to feed that into the actual budget, it means one or two things – if you are going to increase expenditure on certain things are you going to reduce it on something else. Is the budget deficit going to increase or are you going to cover it through new revenues and how credible are each of these things? This will become an issue for debate and discussion.
Q: The other thing that is doing the rounds, pre-budget and pre-poll is a free period for speculation. The other speculation is that income tax limit would be brought up to Rs 5 lakh, can that be introduced in the budget? Now, let us remember that on February 1, government has full majority. It can even after the recess do a full discussion and pass the budget by March 29, like it did last year, so can it introduce a tax measure like this?
A: Legally and in terms of parliamentary tradition, I cannot pronounce on that. It's one thing to say I am going to do it and it's quite another to put it in the budget, because if you put it in the budget, then you must be making some assumption that what it is going to do to tax revenue. Really, you are asking me to speculate on what the government will do and although this is a free season for speculation, I don’t think I want to add to that speculation. This is really something I don’t know about.
Q: I was only asking given that you have seen many pre-election budgets. Is it possible for government to do such a major tax reform or a tax tweak?
A: When you say tax tweak, you mean you are going to actually put it in the finance bill as an amendment or simply announce that we are going to do it.
Q: I meant put it in the finance bill as an announcement and get it passed?
A: I think that will have to be judged in terms of legal feasibility and parliamentary appropriateness and I am just not competent to pronounce on that. But if it is legally possible, surely a government can always announce what it intends to do and bear the consequence of how you are going to fill the hole that is created
Q: It is quite possible that a slightly different government comes in maybe an NDA-led coalition or maybe it’s not an NDA coalition at all. So you are kind of leaving a faith-accompli for the next government isn’t it?
A: Not really, because if the passing of the budget is delayed, it is messy. You are constraining the next government that is certainly true and that is why most people thought you wouldn’t do that.
Q: Can the government do anything with this year’s budget itself. Can it for instance on Republic Day or sometime earlier announce a major farm programme in expectation that maybe it will be able to get the RBI's capital, at least some part of it as the Jalan Committee will announce its decision before March 31. So can it go ahead and say that we will put in maybe Rs 2,000 in every BPL family’s Jandhan account or in the account of every marginal farmer? Can such a plan be announced for the current year?
Nothing stops the government from announcing something during the current year.
If it is to be given reality, then you have to pass the relevant supplementary demand for whatever would be due in that year. But in all probability, what you announce now, it would be an announcement. It is very unlikely that the procedures needed in order to get the money flowing can actually be completed within the fiscal year. So, announcement is one thing and making provision is another thing.
Q: Wear your economist hat and tell us your comment on various measures and promise already being made. Farm loan waiver – is this a good way to go? Do repeated farm loan waivers affect the credit culture and bankers worry a lot?
A: I share that view that it is not an ideal thing to do. It has been done before and is usually resorted to as an emergency measure or emergency relief. One difference between farm loan waiver and some of the other programmes is that a farm loan waiver is a one-off thing, whereas all the other programmes that are being talked about will involve continuing expenditure. So, depending on the circumstances, depending on who is covered, I mean it is one thing to have a farm loan waiver for small farmers. It’s another thing to have a farm loan waiver in states that have been agriculturally affected and is quite another to have a universal farm loan waiver or farm debt and anyway it’s never an all farm debt, because all you can do is waive the debt of the banks and we know that only the top 30 percent or so of farmers are getting bank loans. I think all these things have to be waived together.
The really important thing is, if you look at it from a purely economist point of view, there is clear farm distress.
In the sense that performance in the agricultural sector is not what it should have been and the nature of the problem is also different. It is not simply a production problem. It is really a problem that we haven’t given the Indian farmer the kind of marketing support that he needs and this marketing support in my view cannot be done through minimum support prices. I mean that is a strategy of yesteryear when you were looking at grain.
As farmers diversify and start producing all kinds of other crops, which are perishables – that is where you are getting the big differences as farmers are getting much compared to what has been given in the market. You need much deeper institutional reform of markets including legal changes which have been talked about before. You will never get substantial corporate investment going into the old business of logistics and trade as long as the Essential Commodities Act remains on the statute. Are we willing to abolish it? I am in favour of repealing the Essential Commodities Act. It does not play any useful purpose.
Similarly, all states have very restrictive laws regarding the agricultural produce marketing committees, which restrict trading in the Agricultural Produce Market Committee (APMC) to license traders. We need comprehensive reform of all of this so we can bring in private money into this whole area and every government of the last three has talked about it. If you look at the economic survey and planned documents for the several years, but we are not seeing comparable action. So I feel that this is where we need focus on and also by the way providing farmers with good seeds, research based agriculture - things of that sort.