Finance Minister P Chidambaram, on the last leg of his four-nation sojourn to woo investors to India, says private sector investment will pick up in the next fiscal year. He tells ET Now in an interview from London that the red lines on fiscal prudence will not be crossed, the Congress party and the government were on the same page on the challenges before the economy and that they would present a responsible budget. Edited excerpts:

On the RBI's decision to cut rates and the growth vs inflation debate

Finance ministers will always lean in favour of growth and central bankers lean in favour of taming inflation, but the balance has to be sought by the governor. If he has come to the conclusion that this is a right balance at this time, I am not going to second guess him. I welcome the decision. Going forward, if inflation moderates, he will do more.
On RBI's assertion that challenges to growth are non-monetary in nature

What he means is that more is to be done on the fiscal side if we are to tame inflation and revive growth. That is my assessment too. We have to contain the fiscal deficit. We have to have a credible path of fiscal consolidation, and we must ensure that public borrowing does not crowd out private borrowing.

We are doing what we can and we will do more as we go forward. And once growth revives, say in the next fiscal year, then there is more room for both fiscal policy and monetary policy. But growth must revive and to revive growth, the ball is in the government's court.

Whether investors were holding back on investments and when will that change

As we speak now, my sense is that the public sector companies have started investing. They have been clearly told that they cannot sit on piles of cash. If they do not use it, they lose it. The numbers when they come out in March will show that they have moved forward on investment.

The private sector is little more wary. I have spoken to a number of private business houses. They are still wary, they are still cautious, but are beginning to show interest. There are more enquiries of banks, there are more people coming to see me to say 'Yes, we are going to do that'.

Give them another couple of months, they will wait for the budget, they will wait for the implementation of the budget and the tax changes if any. Like at the time of every budget, everybody anticipates or fears tax changes. By about April, when things are clearer, the budget will be out, the tax proposals will be clear. Next fiscal, private investment should pick up.

On the response of global investors towards India in his meetings with them

Well, the meetings start with a high degree of scepticism, but as the meeting goes into the second hour, or thereafter in one-on-one meetings, I find that there is greater confidence in what I am telling them. They are willing to believe that the government is determined to take the fiscal prudence path. On GAAR, there is universal welcome to what we have done.

My sense is that the ghost of GAAR has been buried... If anyone has to unwind his present positions, he can always unwind them. GAAR only hits at unjustified tax avoidance arrangement. So, there is enough time for people to unwind any such arrangement and become tax compliant.

On awarding new private bank licences, especially to corporate groups

The (RBI's rough) guidelines say that more licences will be given to the private sector (although) there is no specific reference to corporate houses. The government has given its views. The governor told me that he would be able to finalise the guidelines in about two weeks.

We should wait for the final guidelines...Who will qualify for bank licences from the private sector, whether any corporate or any kind of corporate will be excluded, I cannot say. But if the guidelines are laid out and transparently spelt out, and, if a corporate satisfies those guidelines, I do not see any reason why a corporate should not be given the licence.