Finance Minister Nirmala Sitharaman in conversation with PR Ramesh and Rajeev Deshpande
Finance Minister Nirmala Sitharaman in her office, February 2 (Photo: Ashish Sharma)
A day after presenting the Union Budget, the finance minister spoke at length to Open about how the vision and initiatives she has outlined aim to support and propel the trajectory of the Indian economy as it emerges from the shadow of the pandemic. Excerpts:
In his remarks on the Budget, Prime Minister Narendra Modi said there is a change in popular expectations, in terms of utility of doles and whether people, particularly the youth, look for opportunities instead. How would you look at the Budget in terms of what it outlines and seeks to achieve?
The prime minister has encapsulated the economy in the last seven to eight years. Why the comparison to what was—and what is happening now—is contextual and why is it important? You are looking at a phase wherein the economy is coming out of one of those very rare (incidents), that is, the hit or impact of a pandemic. So a monotonous comparison in a year-on-year manner does not work. This very clearly shows in every one of the indicators that I think the prime minister mentioned one by one. There is a clear two-and-a-half times, if not three, growth, whether it is GDP, foreign exchange reserve, inbound FDI. There is a clear change. Two-and-a-half times growth in the economy. The size of the economy is already $2.3 trillion. The difference therefore in planning for a Budget is that you are looking at an economy that is very buoyant. An economy where citizens are aspiring for a lot more. Thus the success of startups, of the very same youngsters who, till a few years ago and certainly before 2014, were not prepared to take risks.
There were perhaps some startups even before 2014 but that did not add up or provide the collective synergy for the economy. The synergy of confident youth moving forward with assurance, and with policy enablers creating the ecosystem, is what shows that there is a pulsating vibe in the economy. For such an economy, for them (entrepreneurs) to find domestic money, domestic investors, venture capitalists…therefore raising equity for their innovative but higher risk business is now also possible. This is part of the India story. But the story is also about bigscale production moving into India. They are able to find opportunities in India that brings sovereign funds and pension funds here. So, for one, I am talking of individual young minds who want creative opportunities and are able to raise funds demonstrating that resources are being generated and ideas are appreciated commercially. Then there are big-ticket investors who are looking at India’s market size, the opportunities it offers, and over and above, the availability of skilled manpower that will allow cost-effective production.
If entrepreneurs can raise resources in India, if scaled-up markets and manufacturing are attracting overseas investments, policy has to facilitate all this. Policies will need to remove obstacles and look at the future
There will be consumption in India and also surplus for export. The funds that are looking to back this investment are not like some aspects of FDI, looking to make a good kill and fly away. They wanted to be invested here. That is a feature we need to keep in mind. Then there are the newer sectors opening up for India. There were the Ubers of the world that came in, the expansion of food delivery, the courier business. Then the emergence of robotics and associated science that is changing logistics tremendously needs to be noted. This was happening irrespective of the pandemic. India was becoming one of those hubs where big-time logistics was to be seen. I have offered just a few examples that show how the vibrancy in the Indian economy is indicating success. Then you have to factor in the pandemic years. Even there, the digital economy and its impact on society is another factor. Thus, what the prime minister said about Budget-making then and now has so many different parameters—the approaches need to be different. Because, if these people (entrepreneurs) can raise resources in India, if scaled-up markets and manufacturing are what is attracting overseas big-ticket investments, your policy has to facilitate all this. Your policies will need to remove obstacles and look at the future to see, as these sectors grow, what are the other things they would require. So Budget-making is not merely looking at revenues and expenditure; it is also looking at how to facilitate an economy that is showing vibrancy, which is revealing strengths that have not been harvested to full potential.
So you also seem to believe that expectations of people have changed. Instead of simply looking for freebies…
Yes, looking at certain aspects of what the prime minister said on the Budget, we need to keep in mind that when people talk of jobs…we need to keep reminding ourselves about what approach the people want the Government to take. Certainly, unfortunate instances happen. The one related to the railways in Bihar. Where, because some errors happened in the process, naturally and justifiably, youngsters who are aspiring to get through the process get disappointed and frustrated [recent protests against the format of testing for recruitment]. I fully understand that. For those positions that are sanctioned (government jobs), we are filling up and taking every measure to do so. Process difficulties can be avoided if technology is fully utilised.
Our approach to disinvestment is that, in the interest of the economy, let the business be sold to someone who will keep it running. Sold with conditions that, for as long as possible, the buyer will take care of the employees
I cite an example as it might address many related aspects. There is an argument that when the Government has committed itself to a disinvestment and privatisation target, this will lead to job losses and, particularly for Scheduled Castes and Tribes, it will lead to a dilution of the benefits of reservation. They will be denied reservation. The approach with our disinvestment or privatisation is like how we see the IBC function…our interest is in keeping most of these organisations, currently public enterprises, going concerns even after disinvestment. What does that mean? It means we are looking for people to bring in fresh equity, take charge and keep them running. For two reasons. If it is a steel mill, as one that has been recently disinvested, or an airlines or any other. After a point when government is unable to run it, for any of several reasons, and after a point when it does not make economic sense to put more money into a bad business, the tendency will be to gradually close it. Because you are answerable for money going into an unproductive business. To end up closing means the economy that might require that product or service, like an airline for example, is being deprived to that extent.
Then those who are working there are going to be told “Sorry, we can’t have you here.” Instead of that, the approach we take is that, in the interest of the economy, let the business be sold to someone who will keep it running. Sold with conditions that for as long as possible—and stipulating this specifically—the buyer will take care of the employees. The employee interest should be fully protected. They should be given enough. So these are not unthinking approaches. The intentions are that the economy should be served, the people should benefit. The approach to jobs is to facilitate people to have their own business. Ensure an ecosystem to allow people to be entrepreneurial and also create more jobs. This is not to say that government jobs are not going to be available. The approach during Budget-making is that we need to have a blend of both the government and the private sectors.
You would find a manufacturing zone around which there would be no port or railway station and the roads would not be in great shape. PM Gati Shakti brings synergy and ensures the government-as-a-whole approach works
You have said the Budget’s vision is also about getting rid of obstacles and this has been the effort in successive Budgets. Initiatives like GST, e-way bills, fast tags, etcetera, are all aimed at removing friction points in the economy. A focal point in the Budget is PM Gati Shakti. How does this work to make the economy more efficient and make investment more productive?
I will start with an example of what happens without the Gati Shakti concept. Earlier, we developed bridges, roads, ports, airports and railway stations that served superfast trains along with others, and so much else. All very well intended. But when you look at how they yielded returns, or how they became a catalyst for development, you see a lack of coordination. You would find a manufacturing zone around which there would be no port or railway station and the roads would not be in great shape. What would you do in such a zone even if provided tax incentives? So, when you develop something without other things being simultaneously developed, things don’t work very well. Now, even if there was a rail head, for manufacturers to reach a sea port or an airport would need more effort. So what PM Gati Shakti does is to bring that synergy and make sure that each time anything is planned, that exhaustive government-as-a-whole approach works. The various departments and state governments need to be taken on board.
I am not saying various facilities will always be there. But the thinking is needed. There is need for speedy and unhindered access to a port of call. This is particularly relevant for landlocked states and there is a need for nimble thinking. We are making sure that tier-2 cities get airports too that are inexpensive but provide important linkages. The Northeast, where there is a lot of resources, be it bamboo, organic vegetables and fruit, has serious problems in getting products aggregated in a cost-effective manner. There is a mismatch. Not just with roads, manufacturing or whatever. Movement of goods or persons is not easy. Gati Shakti will guide infrastructure development and ensure synergies.
Because we have been clear that focus on growth is absolutely critical for sustaining the recovery, we ensure that the money is given there. Somewhat revenue buoyancy has given me that space
You are prepared to spend a lot of money. Your commitment and intent are clear. You are doing a lot of heavy lifting when it comes to capital expenditure. Do you think the private sector will respond to the initiatives in the Budget?
To be fair, the private sector is also moving forward. Given the pandemic, no one can expect or predict the speed at which they will move. But one can see that they are increasing capacities to increase manufacturing. They are also looking for newer opportunities and are taking over businesses, and mergers and acquisitions (M&As) are happening. They are looking at the capacity of Indian markets to absorb production instead of just exports. With the uncertainties that we face, the risk calculation will weigh on the private sector. But I am hopeful—they already have shown good results last year—and should be moving forward.
Do you think consumption is cause for worry?
If you look at core goods, consumption is not an issue. For instance, steel. Both for exports and domestic consumption, there is enough and more demand. The demand exists. The import bill is going up as many raw materials, and coal, are being brought in as there is a lot of manufacturing happening. There is scaling-up as well. Why would they do it? There is a domestic market. So, if the integrated mills are working well, but if prices are prohibitive for downstream industries, they will look at imports. The main point is that they are all in business as demand exists. Otherwise, the import bill would not be going up.
We have gone into great detail looking at how public expenditure should play out. There is an initiative for the northeast for livelihood-creating projects and for villages on the border. That is, from J&K to Arunachal
We have a situation where revenues are showing some buoyancy. The options could have been that maybe you could be fiscally conservative, reduce debt. You have prioritised public spending and, in this context, there is a discussion on fiscal deficit and inflation. Do you think a balance has been struck?
Absolutely. Let me put it this way. We continue to focus on growth from last year. The focus remains absolutely intact this year too. What else can prove this than that last year the capital expenditure was ₹ 5.5 lakh crore and this year it is ₹ s7.5 lakh crore? So, the focus on growth, particularly in public investment to build infrastructure, is intact. Then the question would be what happens to your fiscal prudence. Because we have been clear that focus on growth is absolutely critical for sustaining recovery, we ensure that the money is given there. Somewhat revenue buoyancy has given me that space. However, even the borrowing is higher this time, too. Thus, lots of observers have started saying that I have cut down on revenue expenditure.
Let’s understand that when you spend on infrastructure, then you do public capital expenditure, then the multiplier is more than 2.5. I am being conservative, some say 2.95. Whereas, when you spend on revenue, for a rupee spent on revenue, the multiplier is 0.95. So, will I look at something that gives me, for every rupee, 2.95 in return or 0.95? Therefore, in the balancing, I have gone in favour of growth, sustaining the momentum for growth, by spending and spending more. After all, the spending has to be grounded somewhere. It happens in the state, either directly by the Centre or by the states themselves. That is where, from this ₹ 7.5 lakh crore, one complete lakh crore is being given to the states. We have gone into great detail looking at how the public expenditure should play out. A lot of time—and this is untypical, I know, for a Central Government Budget to get into the detail of planning—has been devoted to this task. There is an initiative for the Northeast for livelihood-creating projects, and separately for the development of villages on the border. That is, from Jammu and Kashmir down to Arunachal Pradesh.
I find it difficult to accept that what floats around, created by individuals who have no sovereign authority, can be termed currency. Currency is issued by an authority with sovereign backing. Otherwise, why go after fake currency?
Are you confident that the system has the capability to absorb these investments?
It is for the states to tell us. The NIP was very much about the identity of the project and location of the project. And now, with this getting consumed under the framework of Gati Shakti, states can now choose projects, particularly for green transition, renewable energy. We also have come up with PLI—that helps in scaling up production of components for renewable energy firms.
You have introduced a tax on crypto assets. Are you signalling that crypto as an asset category is fine, but not acceptable as an alternative currency?
First of all, I find it difficult to accept that what floats around, created by individuals who have no sovereign authority, can be even loosely termed currency. Currency for me is that which is issued by an authority with sovereign backing. Otherwise, why do you go after fake currency in the country? I am at this time confining myself to talking about digital currency. I am telling Parliament that the authority which issues currency, the RBI, will come up with a digital currency. What happens outside of it, transactions which result in profit-making, will be taxed.
When the central bank comes out with a digital currency, and when there are bulk transactions between countries, it helps in speedy transactions. Second, the cost of transactions is going to be very low
You put 1 per cent TDS on crypto assets. Is it to establish a forensic trail to prevent money laundering?
TDS is not introduced just for that world. TDS exists for other transactions. That’s one way for me to keep transactions above board, to keep transactions formalised. And make sure that transactions, when they happen—and both parties who transact—are above board and doing this exercise formally over the table. TDS will ensure that the Indian economy stays formalised.
What are the gains from introducing a central bank digital currency? How will it coexist with the present financial framework?
Well, when the central bank comes out with it and when there are bulk transactions between countries, it helps in speedy transactions. Second, the cost of transactions, particularly bulk transactions, is going to be very low. Third, when there are exchanges happening between central banks, issues like exchange rate will be far clearer and not speculative. And that’s where this helps.
One of the important areas of the Budget concerns the emerging sectors. Are you looking at developing these technologies? Can this be seen as something that can help India leapfrog the development deficits that pull it back?
These are emerging areas. Our youth are showing interest and capability in areas such as genomics, AI and gaming. In genome-sequencing, for instance, during the Covid pandemic, the private sector and ICMR worked together and showed that India is as good or even better in genome-mapping, and so on. It is an area where India has an advantage but needs a lot of support as well. So, for R&D, we would like to participate and offer support. We believe that India has a lot of capabilities in the sunrise sector and we will do everything to capitalise on it.
We want to make additional gains—not just incremental but substantial gains from these initiatives. This will brand India as a leader in the digital world. It will also help other countries that need that assistance
There is a big focus on digitalisation. These are under different heads—education, health, skilling, university education, etcetera. What are we looking to achieve through these initiatives?
We want to make additional gains—not just incremental but substantial gains from these initiatives. This will brand India as a leader in the digital world. It will also help other countries that need that assistance. After all, the world is moving towards greater digitalisation. And if you are a leader, it will give you a position at the high table and you will be able to decide policies for it. We will also be in a position to influence countries to democratise usage of digital assets. During the pandemic, we showed the world that we were able to reach every citizen without any human interface. This was happening at a time when many Western economies did not have a clue as to how to reach their beneficiaries. While they were delivering cheques, here we could do it by pressing a button. In the coming days, we will develop an India stack—in education we are doing a desh stack; for labour, we have created an e-shram portal. When you have all these, within India we are making sure that Aadhaar gets linked, drone services get linked. So if you have a property in Mumbai and you live in Shillong, you can do your buying and selling digitally. This will help every citizen use every service without human interface and intermediaries.
Opposition parties have been critical of the Budget. Some went to the extent of saying that it was an “uninspiring” fare?
I don’t think they heard the Budget and really understood the import of the announcements made on the floor of Parliament. They should read it and then raise questions. I am fully willing to answer and take the criticism. But to make off-the-cuff remarks like “Oh, this is a zero Budget”, or “Nothing in this Budget…” Some even went to the extent of counting the number of times I referred to the poor. It is disappointing and sad—just because you need to comment immediately after the Budget presentation. A thoughtful response would have been more useful to me. And that would help the country.