The government focused on the quality of expenditure while designing the Union Budget 2021, Finance Minister Nirmala Sitharaman told Network 18 Editor-in-chief Rahul Joshi, in her first post-Budget interview to a private television network. “I am sure that because of the way in which we have designed it and also monitoring the qualitative expenditure that we are planning, it will definitely give us that required multiplier for the economy,” she said.
Sitharaman said in the initial days of the coronavirus pandemic, the government was conservative in its stimulus spending because there was a risk that many people would not spend the money, but instead, save it for a rainy day. “Giving money to people so that immediate demand-push will happen and through that, people will be expected to spend, also had a question with it: Will they spend or will they keep it aside for a rainy day?” she asked.
Sitharaman said the government deliberately planned to fund its spending through higher market borrowings and not by raising taxes. “I certainly didn’t want to fund this whole operation through taxation. By increasing tax, getting the money, and then spending is not something which any of us even put on the table for consideration,” she said. “So that is why I have made provision for large borrowings with the tax buoyancy kept at a very conservative level and with disinvestment, asset monetisation, and improved goods and services tax (GST) collection, I hope we will be looking at better ways of handling our finances.”
On public sector banks, Sitharaman said there was a sentiment around them that they could not be "touched". But that cannot be the guiding principle for the government, she said, adding while it wanted more public sector banks, they "had to be functionally strong, professionally managed and those that can meet the demands of a growing aspirational India".
Edited excerpts from the interview:
Q: It has been a tough year for you, but I think you have every reason to smile today. The Sensex bounced 2,200 points. Did you really expect this, and how do you feel?
A: No, I still have not seen the kind of reactions that are coming, because after presenting the Budget, I have been moving from one meeting to another, meeting people and giving interviews to newspapers. So, I have not followed developments, either in the markets or anywhere else.
I hope the intention of the two-three major points, which have come across in the Budget, is well understood and well received. If it is being received, I will be happy, because after all, we want the country to understand the intent of this government.
Q: You have presented this budget in the backdrop of a once-in-a-century pandemic and also with a highly aggressive neighbor; we saw aggression from China. What were you thinking about when you were framing this Budget?
A: One thing was clear. If I had more resources to give, I would have given it to the people as much as we could, but we haven’t had that kind of a comfort. We didn’t have it then, we don’t have it yet, we hope to have it soon.
Also, the fact that even during the pandemic the small amounts that we gave to some people, were partly also kept aside. And I don’t blame anybody for it, they were saved for probably rainy days because the uncertainty is such.
Giving money to people so that immediate demand-push will happen and through that people will be expected to spend, also had a question with it: Will they spend or will they keep it aside for a rainy day?
Also, spending will result in immediate demand increases – no doubt, possibly if they spend – but will it be a meaningful trigger for a virtuous cycle to be triggered? Unless that spending happens in sectors where the (force) multiplier will work, there is no point in spending in areas where the multipliers are weak.
That is why we have taken this route of qualitative expenditure, capex through infrastructure building, capex for health so that you bring in such infrastructure and such facility for health, and there take an approach of holistic health and then look at agriculture. That is why we have gone through this route. So that is one side of the story.
The other – I certainly didn’t want to fund this whole operation through taxation. By increasing tax, getting the money and then spending is not something which any of us even put on the table for consideration. So that is why I have made provision for large borrowings with the tax buoyancy kept at a very conservative level, and with disinvestment, asset monetisation and improved goods and services tax (GST) collection, I hope we will be looking at better ways of handling our finances.
Q: In many ways the Economy Survey was a harbinger of things to come. Your government is finally going for aggressive growth without worrying so much about what the fiscal hawks would say. For a government which has been fiscally prudent and conservative, do you think this is some kind of a U-turn or a turning point in the way you look at the future?
A: No, I don’t, because it is one thing to be conservative and fiscally prudent in normal times. Even now if you notice, when people kept telling, ‘print money, you have to spend’, I also made a conscious statement that if 'I don’t spend now, I will only be postponing the growth and I have to spend'. That is clearly a conscious statement that I made.
So, given the situation that we are in, a stimulus was absolutely necessary. Quality expenditure is what we were looking for and that is why when we have decided and when we have taken a call, I am sure that because of the way in which we have designed it and also monitoring the qualitative expenditure that we are planning, it will definitely give us that required multiplier for the economy. Once the economy is into that virtuous cycle, income generation, revenue generation and all of that, will fall in place. So your fiscal prudence is still intact and that is why I have given you a glide path because I am confident that this year I might have gone that far but I can rein that back in.
Q: But 4.5 percent in 2025-2026 given that we were hovering between 3 and 3.5 percent in the last couple of years before the pandemic?
A: That is true but the pandemic and its impact is something which we will have to keep in mind for the duration it is going to take for it to come back to that kind of a buoyancy; for that level of growth. I cannot be overestimating the economy and I don’t think the economy is in a position to even heat or overheat - those fears are not at all there. Therefore, I have to give it a reasonable time and I didn’t grudge that.
Q: By now we know what the government thinks of rating agencies like Moody’s and Standard and Poor (S&P)...you know of them being noisy, opaque and biased, but do you feel that there could be a threat of a ratings downgrade and how does that bother you or if at all?
A: Let me put it this way - I don’t want to say I am not bothered. At the same time, I didn’t let it bother me because otherwise even during the pandemic a lot of people kept asking me: is the rating agency worry stopping you from spending? Now I am spending. So then or now, it is not that bother, but of course by giving a glide path, and by restraining too long like the way in 2008, it was left open and there was no closing the doors. As a result you had all the taper-tantrums and the economy was still going through a big difficulty. We have learnt lessons from that and therefore I am confident this will be appreciated by people who are discerning in these matters.
Q: We will move on to the asset reconstruction and management company that you have announced today – it’s a path-breaking development. Can you tell us a little more about this bad bank and will the private sector also play a role here?
A: Yes, we have done it in sort of stages. In the sense, first with the Reserve Bank of India (RBI) being with us because this has been an ongoing discussion with them. What we want to do is to have a kind of holding company that will, with the formulation given, take those assets - bad assets - from various banks and put it into that holding company.
It will have some participation from the government, but largely it will be the Indian Banks' Association (IBA) itself doing it. So that holding company would then spruce up the accounts, understand where the asset valuation is. Year after year, we are giving provisioning, and these banks have already lost a certain net worth of these assets which are with them. They have already taken probably on paper, a haircut, but they have not realised anything out of sitting over those assets for years and are providing for it in their bank books. Now, once these assets are carved out and given to this holding company, they will be able to value it and then call for private sector asset reconstruction companies, Alternate Investment Fund (AIFs), all to come and look at what they want to do with an asset which is like that with them, and sell off the asset.
Even at that, whatever is realised, the banks will have to get some part of what they have to get. In the sense, with the due 'haircut' taken, they will also get something from that realised monies. So, the bank, essentially, therefore, gets back what it should get back and ideally because they are not in a position to or they don’t have the wherewithal to deal with such assets, because they are running the bank on an everyday basis, they don’t have experts who can understand what it is to deal with asset reconstruction and these assets are sitting there languishing, not getting sold off. Now, with this holding company and with also the market coming in, those assets are going to find some kind of a buyer and the banks therefore forever can get out of that situation and realise whatever little they can.
So, this is a workable solution that we are bringing in, the banks are all on board. We have had extensive consultation with them and with the Reserve Bank of India. So there will be a proper institutional framework through which this will happen in an absolutely transparent way.
Q: You were expecting tax revenues to grow by 15 per cent to Rs 15.45 lakh crore. For this to happen the Indian companies will have to grow at the same pace as they were or perhaps much more than they were, pre-pandemic. Are you confident of that, do you think that we have turned around?
A: I think the Indian industry has also slowly revealed that the corporate tax rate cuts have also helped them, although it happened pre-pandemic. Now many of them have also offloaded their debts, they are now looking at expansion. Expansion is happening in core sector industries, there is also a lot of pick-up in exports. People are seeing it is possible to invest and grow. So, I guess the private sector spirit to come and invest and start widening their domain together with also raising funds.
For instance, we are working on listing the Morgan Stanley index on which the ministry has worked now for some time and I expect some kind of a resolution this summer. After that, companies can go about raising – they automatically will receive now that they are part of that larger index, they will receive funds and with that, I think there will be a greater investable fund available.
Q: There is a little bit of confusion around the agri infra cess. What really was the idea behind this?
A: I will just give you a broad principle. Many of the customs duties, the items selected for it, are those which can afford to pay the duties as it exists today. But even then, even as we talk of Aatmanirbhar Bharat, the intention being that import should happen at least for those sectors where the raw materials are coming from abroad.
So, for instance, if you were paying a Basic Customs Duty (BCD) of 12 percent – something like that in gold, for instance, we brought the BCD down to let us say 7 percent and after that, we just added 3-4 percent of this cess which we want essentially to be carving out from that customs duty only for the purpose of funding infrastructure and agriculture.
At the end of the story, in each of these items on which I have imposed the cess, the agricultural infrastructure development cess, is the end consumer or the importer is not going to pay Rs 1 more. The reduction in customs and the imposition of the agri infrastructure cess net-net is not going to burden the consumer or the importer.
But why did I have to do it? I had to do it because I wanted to make sure that the fund for funding infra in agri has got a head under which I am earning certain amount and that can be used. Otherwise, the BCD goes into the account, alright. For instance, in the case of petrol and diesel where this duty applies, we have applied it on the additional excise duty which is purely central government’s money.
Q: So the states will not get short-changed in this?
A: No. First of all, the money that I am collecting through this cess for agri infrastructure is also going to be given to the states for building their own infrastructure. But at least I am apportioning it for particular capital expenditure. In the case of petroleum and diesel, the Centre as it is was collecting only fixed amounts. It is the states which are collecting ad valorem on the basic rate. So, the amount that I am getting as a fixed amount, is on the additional excise duty which is purely central government’s money.
Q: You have also increased customs duties in some key items and you have said that 400 customs exemptions will be reviewed. Is it aimed at reducing our independence on imports from China?
A: No not necessarily, I have looked at 400 notifications for instance which were issued in 1992, 1993, 1995… some even probably just earlier than that and which have just remained there, so in the process of looking at all these notifications, we realised many of them are just there, continuing to be there and even if the need is no longer felt, but are there, so I said this is no way of running the ministry let us please look at it.
In fact last time you would remember, I had asked for public opinion through cloud sourcing to tell me what reforms can be done in customs. A lot of people gave me inputs also, so, in that context, I said please pick up all these, put it to discussion, let stakeholders come and tell us and that is why I bought time till end August --- saying all comments are welcome on these, do you want this to continue even though it has been there since 1993, 1994 and 1995. If it is got to be, alright we will do it, but that will be effective from October 1st.
But I have also brought this, therefore in order that we don’t repeat the same error, any notification from now will automatically expire after two years unless in the meanwhile people have asked for renewing it, we will renew it.
From March after the time of that notification expires, the March after that it will disappear, otherwise, we are just sitting with all these ancient papers all of which are effective in the ground, somebody somewhere uses this discretion and says “sorry this is the notification,”. It leads to a lot of discretion.
Q: Today in your budget speech I have noticed that you made a strong point on MSP. You were very cogent, very articulate about how the government has only increased MSP on farm produce over the last few years? Why do you think that farmers doubt the intent of this government?
A: That is surprising to me actually because if our MSP performance is undoubtedly steadily going up from 2014 till today, to doubt the intent of the government and that is where I feel I honestly want them to come on to the table, be at the table and talk it out with Narendra Singh Tomar, the minister and specifically tell us where your grievances are.
The PM himself has said that he is willing to look at any modification that they want and talk about it. I honestly want them to come and specify where does the problem lies? MSP, I am telling you with data, I am telling in the house, I am giving you government information in the house. You have questions about it please do come and talk. We are willing and that is where I wish talks continue.
Q: Do you think the protests are mostly stoked by opposition parties by people from outside rather than real farmers?
A: I don’t know who is stoking it. I honestly equally know that farmers, at least those who are present there, some of whom are farmers are probably misguided. I want them to talk. I want them to talk about particular points of concern. I want them to tell us what in this is not right, we are willing to concede.
Q: What makes you really lose sleep? What are the biggest risks in this Budget that you would sort of worry about? Is there anything that could go wrong in your assumptions or you would be cautious about?
A: I would be foolish to say anything on this because who anticipated a coronavirus in February 2020 when we gave the Budget with all optimism.
Q: You cannot see black swan events but otherwise you think these Budget estimates are realistic?
A: We have made an honest attempt.
Q: I often wonder, if this government goes for bold reforms of the kind you have done today – you are called the “Suit-Boot Ki Sarkar”, if you don’t the industry calls you a “socialistic regime”. So in a way damned if you do, damned if you don’t. So how do you really marry the two divergent aspirations of people at large?
A: There is a very fine balancing act to do there. The Prime Minister is a very clear-headed leader. He never misses out on what has to be done to the weaker sections, never misses out on things that have to be done for the poor and needy. After having announced a lockdown within 48 hours the Garib Kalyan package was announced. I know how much our bank employees struggled during that COVID times. In fact, they were all exposed, at that time nobody knew to what extent anyone can go out but they were all there. That is why in my speech I did say – milk vendors, vegetable vendors, electricity pole workers, bank employees, firemen, policemen, armed forces, all of them did a spectacular job using the technology and giving DBT, otherwise we wouldn’t have been able to reach all those deserving people about whom the Prime Minister was very keen.
The Prime Minister said I want them to be given all the basics – food, cooking fuel, and some money so that they are not worried, put it into their bank accounts. So with Prime Minister was conscious of India’s diverse population where the poor are struggling, the EPFO announcement earlier where we have said for the next two years we will pay the PF for those registered companies to take back workers who they have thrown out, is a very clear sign. So the balance that India needs is not going to this extreme or that extreme – socialistic totally or completely open market – that balance is what the Prime Minister is constantly working on and he will never miss out on that.
Q: The Budget has got great reviews from one section of captains of the industry, the opposition parties have criticised the Budget in some senses. I wanted to ask you a question on growth. Are you confident that we will be able to grow in the next few years in the way the economic survey pegs the growth at – GDP growth at 11 percent? And is it sustainable over the next few years? Former finance minister and your predecessor says that thinking of a V-shaped recovery is absolutely vain and predicting it is vanity. So how do you react to this criticism?
A: I never got into the alphabet soup business of V-shaped, K-shaped, or anything else. I am not even bothered to talk about it because I don’t want to get into that discussion. My job here is to make sure that Indian entrepreneurial motivation, the drive that Indian businesses have – small, medium, large, all of them have - otherwise do you think just even when there is a partial unlocking happening, people have gone about their business otherwise do you think these kinds of GST numbers would come now? So I don’t believe that I am talking about a V-shaped growth or X-shaped growth for people to judge me.
My business here is to take care that I facilitate the Indian entrepreneur, the Indian migrant worker, the Indian workers who want skill, the Indian businessmen who want to run their business and take care of their family, it is my business to help them. The economy will get triggered based on their hard work, I don’t for a minute think it is me sitting in Delhi North Block to do it. So let there not be any confusion about that. It is the spirit of the Indian entrepreneur which is growing and which is delivering and that is why I took the example of the cricket team in Australia. If they could perform when no one in the cricket world thought Indian’s can perform when you had the typical Australian sledging happening, but they withstood all and showed performance, that’s pure India – the Indian youth which just wants that little help from you and they will do it all for themselves. So I believe that I am here to facilitate.
Q: A lot of people today have compared your Budget to that of Manmohan Singh’s Budget of 1991. How would Nirmala Sitharaman want to be remembered as – a bold reformer or a champion of inclusive growth?
A: I don’t know, I have not applied my mind to that at all.