Nirmala Sitharaman: ‘People want their government to ensure opportunities. They don’t want to constantly look to it for doles‘

This year’s Budget was billed as a ‘never before event’ meant to address an unprecedented contraction in the economy engendered by the Covid-19 pandemic. To ensure that her Budget is a big-bang force multiplier on jobs and asset creation, the finance minister buried fiscal deficit constraints. Speaking to Open, she asserts that it is time to abandon the socialist baggage and mark the directional change an aspirational India wants. Her mantra is to end the ambiguity in economic policymaking and focus on getting government out of non-strategic areas.

This is a big-bang exercise that has restored the primacy of the Union Budget in the country’s micro-economic framework. The Government is going to be the biggest spender and force multiplier. Is this going to be the new pattern?

The Budget had to show that the Government is not averse to spending or to giving the necessary stimulus to the economy and that it has listened carefully to so many people who have given their counsel. This spend, for providing a stimulus to the economy, is also a responsible spend—responsible both in choosing the time, and responsible in targeted expenditure. By this, we aim to achieve two things. First, the force multiplier that infrastructure brings with it—some speculated it is 1:1.25 and some others say that it’s 1:2. For every rupee spent, this is the kind of multiplier effect it would bring and, therefore, infrastructure is the preferred route. It will also have an immediate bearing on people getting jobs, work for the skilled and the semi-skilled and real opportunities for the unskilled. And second, we also realise that the quality of spending can be monitored well when you do this. It’s no secret that there’s a resource constraint. It’s no secret that the funding will have to come through borrowings that the Government is going to do. Disinvestment is going to give me non-tax revenue, but that will take a few months from now to start trickling in. So, qualitative spending, creation of assets and providing jobs immediately will—by the assertions of economists and even critics of the Government—for sure, put India in a virtuous cycle. That’s why this Budget has chosen this path. I cannot say whether this will be the new pattern, but that will depend on how the economy picks up and how my revenue generation improves. With this thought in my mind that a glide path will have to be kept for fiscal prudence.

For the first time, you have buried the ghost of fiscal deficit constraints and shifted focus to public expenditure. Earlier, public expenditure was a residual of fiscal policy and government had little freedom to spend. How do you explain this change?

I have given myself space to be able to do this by stretching the deficit. The number that I have shown will give me that space. I have chosen to spend it on capital expenditure. We thought of this as an opportunity for the Government to state clearly what it stands for. Equally, to remove the socialist baggage and mark the directional change which aspirational India is looking for. The youth, who constitute two-thirds of our population, firmly believe that there are many things that government has no business being in and that it should not squander away taxpayers’ money on enterprises that can be handled successfully by private players. Aspirational youth is restless because of the ambiguity in the economic policies practised in the country. We wanted to address that ambiguity. We believe that policymaking has to get rid of that ambiguity and say “no” to government presence in non-essential areas. That’s one thing that I want to underline about this Budget.

“Qualitative spending, creation of assets and providing jobs immediately will put India in a virtuous cycle. That’s why the Budget has chosen this path. I cannot say whether this will be the new pattern, but that will depend on how the economy picks up“

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The big shift that you signalled is the exit of the public sector from non-strategic areas. It is economically powerful but could be politically troublesome. How do you propose to manage the fallout?

The youth of this country are looking for that narrative from the Government. Are you conscious of a vibrant India, are you conscious of an entrepreneurially successful India and, therefore, are you going to empower them or are you going to persist with a smokescreen that says “I’m the authorising or licensing agent and without me giving you that permission, you cannot do any legitimate entrepreneurial activity”? That smokescreen had to be got rid of. And that’s what we have done.

The big takeaways suggest a ‘mindset reset’ for the country. Do you think India is ready for it?

It is a reset certainly. It is a reset where government will have to speak the people’s language. People want their efficiency rewarded. People want their skills to be upgraded and given due recognition. People want an honest profit to be appreciated. People want duties with responsibilities. People don’t want patronage. People want government to ensure opportunities and don’t want to constantly look to it for doles. So, it’s an explicitly stated agenda rather than a couched agenda. How else would you do it? If a mandated government doesn’t state it, there will always be the doubt that discretion would come into play. It can come into play by favouring some and harassing some others. So how much ever you talk about cleaning the system, that would be only at the edges rather than getting into the core. The ordinary taxpayer of this country longs for that day when every rupee s/he paid would be counted. When s/he sees that the money, which s/he is honestly paying as tax, is going down a black hole, there is bound to be revulsion. Especially when s/he sees that the money is being sunk into companies on their deathbed, it is natural for her/him to be disgruntled about honestly paying taxes. The taxpayer may not expect to be rewarded directly, but s/he expects government to be responsible in spending that tax money. There are still some areas where the public sector has a role to play. But to deny private participation in every sector is convoluted thinking.

The mindset was always there. The mindset wanted the country to be unfettered. It was the political class which was not recognising it.

The Jana Sangh and the Bharatiya Janata Party (BJP) believed, while keeping in mind that the nation had to be strong and self-reliant, that individual enterprise should not be scuttled. That profit can never be a bad word. But look at Congress. Without batting an eyelid, they are the ones who have switched completely from the socialistic agenda to claiming credit for opening up the economy. How much did that get discussed in any one of the AICC sessions? How many voted for it and who were against the policies adopted by its governments? Look at the radical shift they can make—claiming at one time that they believe in nationalisation and at another time that they are the most economically progressive. That is the landscape of acute contradictions in which Congress finds comfort. We, on the other hand, have been saying from the days of the Jana Sangh that India’s strength lies in the capabilities of its entrepreneurs but they have been fettered constantly by the licence quota raj. Is it not time now to ensure that the next generation does not suffer in such situations? That’s why we chose to clear the ambiguity on policymaking.

The popular mood may have been for unleashing the animal spirits, but that was not being reflected in the policy response of previous governments. There was a gap—the public was ahead but fear was holding the political class back.

Yes, it was important to address this mismatch. Otherwise, the youth of this country—and I repeat, two-thirds of the Indian population—is not going to like it if government looks the other way even as aspirations are voiced by people. They want the opportunity to prove their worth. That’s why I quoted the example of the cricket victory in the Budget. The captain was not there. The team did not lose spirit nor distrust its captain but performed as a team with an insuppressible thirst to win. Two-thirds of India are waiting to perform. That’s the connect I wanted to bring to this Budget. Allow them to enter every sector, every area. You have no right to sit on non-performing assets (NPAs). We have to be accountable to the people.

“The ordinary taxpayer longs for that day when every rupee he paid would be counted. When he sees that the money is going down a black hole, there is bound to be revulsion. The taxpayer may not expect to be rewarded directly, but he expects the government to be responsible in spending tax money“

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Some experts say that it’s one of the five most disruptive Budgets in independent India. How do you see the movement forward?

Let me tell you what I have done in the Budget. Everyone wants transparency everywhere. Government, therefore, should keep its books transparent. And how many governments controlled by different parties genuinely attempted to clean up the books? Yes, I made the best of the pandemic. I used this opportunity to clean up the books. And that’s why you find the funding for the Food Corporation of India (FCI) is not kept out of the balance sheet. We brought it on to the statement. The National Social Security Fund (NSSF)—which is actually a savings programme—should earn the maximum for people who are investing in it. We borrow from it. I am not saying that tomorrow that kind of borrowing may not happen. That could happen. But the Government has clearly acknowledged where an item should actually be and where an item should not be. There is no stealth. I would be the last person to pour taxpayers’ money into economic activity that makes no sense for government to be in.

Now take the running of airlines. Every government agreed that it was no longer possible to run Air India. No one would disagree. But in order to keep it alive, I am pouring more taxpayer money into it. I should do it if there is an emergency, one-time need. Now it has become an annual ritual. Is it going to be better-run by me as it stays now? Probably not. Every government tried to make Air India run well. I am not accusing anyone. But can I do it now? Can any government do it now? Therefore, I think putting taxpayers’ money into something that doesn’t show any prospect of running successfully is wrong. At the end of the day, I am responsible for ensuring that every rupee of taxpayer money is not misused or used irresponsibly.

In my childhood, I had this curiosity about the bills that shopkeepers would give after purchases. At the bottom of the bill there used to be ‘EOE’ written. For a very long time, I did not know what it meant. I checked and found that it meant ‘Errors and Omissions Expected’. He is indemnifying himself against any possible legal action. It covers the shopkeeper from any omissions and errors. For the money that I get from the taxpayer, I cannot have omissions and errors. Can the finance minister claim EOE type of immunity? Certainly not.

“Two-thirds of India—the youth—are waiting to perform. That’s the connect I wanted to bring to this Budget. Allow them to enter every sector, every area. You have no right to sit on non-performing assets. We have to be accountable to the people“

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Another big idea in the Budget is that of the bad banks. When will it be operationalised?

I have not said that. What I am setting up is not a bad bank. It’s actually a formulation by which we will have a holding company to be held by all the banks. The Government may give a little amount to it. But it’s entirely the banks’ own arrangement. It’s a company into which all these NPAs will go and the Reserve Bank of India (RBI) will provide the supervisory guidance. And once these NPAs go into it, through asset reconstruction companies that are in the open market, there will be a process of bidding and buying at a certain value, looking at the actual value of that company on that particular day and so on. Already, banks have been making provisions for these NPAs over the years and, strictly speaking, by now some of these assets are left with only 15 or 20 per cent of the value. The rest has eroded. Now, if they are the ones going into this holding company, they will be buying through a competitive bidding process that is open. They will take this asset, giving a certain amount of money, and from that money banks will receive whatever they are expected to receive. As it is, they are shorn of the value. And the mechanism will help banks get out of this. Why banks cannot do this instead of giving it to a holding company is a legitimate question. But banks do not have the wherewithal to deal with this. They are expected to run the bank, lend, make money out of it, keep the books, and spread the banking culture. They are not here to value it, handle assets and dispose of them. If that is the reason for a bank to sit on these NPAs, government has to constantly fill the provisions—equity capital—to run it. How long can this go on? Again, there is the principle of taxpayers’ money—am I going to use it to fill these gaps? Instead, if I give this taxpayer money for lending, it will make the economy a lot more robust. I have to adhere to this principle of being honest with the taxpayer: give him the returns for his honest money and not shove it down unending black holes or pour it down businesses that cannot run well. That is the philosophy. This is the disruption that the Budget would do. The holding companies will get operational once the Budget session is over.

“I used the pandemic to clean up the books. That’s why you find that funding for FCI is not kept out of the balance sheet. The NSSF should earn the maximum for people who are investing in it. We have clearly acknowledged where an item should actually be and where it should not be. There is no stealth“

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Once the debts are off the books, the cost of lending has to come down. How will this play into the investment cycle?

Banks will have more money to lend. If the NPA burden is removed from their head, the money that they earn will be available for banking business.

You have announced several initiatives for Micro, Small and Medium Enterprises (MSMEs). But how do you propose to handle their fundamental problem: access to credit? Are you going to coordinate with the RBI to figure a way out?

I think the solution cannot just be one-sided. There are different aspects which limit an MSME from credit. It could be the nature of the entity’s operation where the flow of its earnings has a different calendar from that of the bank. The bank’s credit servicing calendar does not match with an MSME whose payment calendars are very different. As a result, it is constantly borrowing to keep this calendar going. That’s one problem. Second, is the company big enough to be under the Goods and Services Tax (GST) regime? Because once it comes into GST, it has some advantages. Its input credits can be got back. Then, if it is on a TReDS platform (an online mechanism for facilitating the financing of trade receivables of MSMEs through multiple financiers that pulls in many private companies, PSUs and public sector banks), it gets discounting benefits. The biggest problem for the MSME is whether it’s a government or a large corporate body to whom it supplies. Payments may not come on time. Today, the Government does not sit on payments beyond 45 days. There are ministers like us who breathe down the system to pay up. But no one in government can tell a corporate body to pay up. They know their business and how to run it, and I fully respect that. In a way, they also state in their annual report to the Ministry of Corporate Affairs how much they owe their suppliers. But all this does not help MSMEs. So, when you talk about an MSME’s problem of accessing credit, it’s not a problem of only banks not providing funds.

“I used the pandemic to clean up the books. That’s why you find that funding for FCI is not kept out of the balance sheet. The NSSF should earn the maximum for people who are investing in it. We have clearly acknowledged where an item should actually be and where it should not be. There is no stealth“

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When you talk about an MSME, it’s also not a homogenous problem—a problem across the board. Yet today, this Government, even during a pandemic, has given a lot of time, money, energy and application of mind to make sure that we understand each one of these problems. Let me give you an example. Emergency credit was given to MSMEs to provide additional liquidity without additional security demands. This is just so that the MSME got money to meet the new demand. But it’s a unit which is already an NPA. Even before the pandemic. So banks will not give it additional liquidity. Thus, we came up with another scheme. A lesser known but a critical one: the subordinate debt scheme. Why did we come up with it? We said: your company per se may not meet the bank’s requirements to get some additional loan, but you as a promoter can get that loan. Tell us what your share is in the company and you can get debt as an individual on the basis of that. Take that debt from us, but put it as debt in your company. The moment you show it as equity, the bank will give you money. We made that arrangement and quite a number of pre-Covid NPAs could access these funds. We expanded the definition of MSMEs. By that, they became beneficiaries of many schemes. We also came up with a rule that in government tenders less than Rs 200 crore, global tenders will not be allowed.

“What I am setting up is not a bad bank. It’s a formulation by which we will have a holding company for all the banks. It’s a company into which all NPAs will go and the RBI will provide the guidance. Once the NPAs go into it, through asset reconstruction companies in the open market, there will be a process of bidding and buying“

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The middle class feels left out. What do you have to say about that?

As with MSMEs, this is not one vertical group. It is spread across the board. So when I give, let’s say, interest subvention or tax-related exemptions for affordable housing, is it not for the middle class? When I talk about better skill training and education facilities, is that not for the middle class? In the Employees’ Provident Fund Organisation (EPFO), we came up with a scheme where we told employers that if you take back people we will bear the employee’s contribution for the next two years. Is that not for the middle class? I can go on. Rs 5 lakh Ayushman Bharat scheme—is that not for the middle class?

Your Budget has defined policy focus on healthcare to include drinking water. Is this similar to redefining poverty by going beyond mere calorie consumption?

Why did we do this? What does the Swachh Bharat Abhiyan tell us? Many health-related peer group reviews said that because of Swachh Bharat, there has been a drastic reduction in serious illnesses among women and children. This means health is directly influenced by sanitation, clean drinking water and overall civic cleanliness. I took a conscious call on this because health per se will get money—but I cannot look at health as a separate silo involving only treating patients who come with illnesses, or even as one only involving a preventive, curative and wellness approach. What’s the point in giving money to a hospital to buy the best machines, imported gadgets for diagnoses, etcetera, if it’s overflowing with filth? We have to address the issue holistically.

“When I give interest subvention or tax-related exemptions for affordable housing, is it not for the middle class? When I talk about better education facilities, is that not for the middle class? In EPFO, we told employers if they took back people we would bear the employee’s contribution for two years. Is that
not for the middle class?“

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Do you feel vindicated? You have been a target of vilification campaigns by leaders of the opposition.

I am doing what I am expected to do. I am not averse to criticism. I am okay with people giving me suggestions, not this way but in some other way. It concerns me only to the point that I want to keep my eyes and ears open always to accept good advice.

About The Author

PR Ramesh

PR Ramesh is Managing Editor of Open