Two days after announcing the fifth and final tranche of the Rs 20 lakh crore AtmaNirbhar package, Union Finance Minister Nirmala Sitharaman Tuesday, responding to a question on the possibility of deficit monetisation (in simple terms, printing currency), said that she had an open mind. And that she would seriously begin work on expenditure rationalisation given that the government’s revenue is likely to be severely hit because of the pandemic and the lockdown.
“I have to be ready (going ahead)…because no one knows how this is going to turn out, how this is going to end, how this is going to withdraw. So obviously I have to be ready, I can’t finish my story with these announcements,” Sitharaman told The Indian Express in an interview. She was responding to a question on whether the government was preserving the spending firepower for future.
Read full interview with Finance Minister Nirmala Sitharaman below
Several projections have been made on contraction of the Indian economy this year. What is the assessment of the finance ministry and its economic division?
It’s too early for me to make an (assessment), it’s too early for me to even hazard a guess. We have sat down to talk about very many things, this was also something which (came up for discussion). I presented a Budget in February, not even two months ago. Many assumptions of my Budget are now going to be questioned, reset etc. I have already reset my borrowing schedule. It won’t be sensible for me to even make an assessment saying this is where the economy is going to be, this is the extent to which the economy will contract. No, not now. I would rather keep myself open and see how things go and make the assessment a bit later.
First of all, I am not going to question or dispute or argue various assessments which are coming. I have not hid anything from the public, I have said this is how I have done my work, how it’s being spread, this is the liquidity. I have laid it before everybody. Now if you want me to tell you the outlay from the Budget, let me tell you this is Government of India, Ministry of Finance, dealing with public money. I will have to stand up in Parliament and say, sometime — and I will do it — but at this stage what is it that you want? Is the money going to the place to where it should actually go, is it going on time, look at all that. Now if the question is tell me the fiscal deficit or could you spend only this much from your entire Budget? You are at liberty to do that. I am not criticising, questioning, objecting to anyone doing their assessments, please go about it. I have heard a lot of suggestions, and I have said this even earlier. The suggestions have come from so many people, experts, economists, students, former officials. We have taken all these into cognisance and studied these at various levels — departments, finance ministry, PMO — and we have come out with this (package). I am not disputing any of the suggestions, but after having done that extensive, and in fact, an open exercise, we have come up with this.
You are perhaps the first Finance Minister to face this kind of crisis, which also has serious economic implications. Many economists have suggested that a way to deal with situation is the Reserve Bank of India monetising the government’s deficit to give spending power. Has the government discussed this proposal?
As I said I have heard every suggestion. I said till the level of the Prime Minister, suggestions have been heard, and we have come up with this.
On monetisation of deficit specifically, what is your view?
No, at this stage, I can’t say anything. I have said in seven hours over four days (while announcing Atmanirbhar Bharat package) everything that I had to elaborate on. So if I have put this (package) forward, there are ever so many that I have left out. Do I answer for what I have put out or do I answer for ever so many that I have not taken on board, however worthy they are. Those which were not taken on board, are not not worthy of consideration, they are worthy. But I have come up with this.
In a recent interview, the RBI Governor said it had not closed the option of monetisation. So does that remain under consideration of the government?
That is why I am saying I have kept myself open, as we go we have to see how things develop. Do you or does anyone for that matter know how this pandemic is going to pan out? Can I guess that it will be all over by December? Then there is a point in me saying that alright, now I have to think about that. But we don’t even know if it has started retracting yet and we have ten full months to go. So I have to watch as I go and be ready for anything. So I have said this now, I am readying myself for anything.
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Is the government preserving the spending firepower for future because we don’t know for how long the pandemic will last?
I kept saying that I have to be ready even as I go because no one knows how this is going to turn out, how this is going to end, how this is going to withdraw. So obviously, I have to be ready, I can’t finish my story with these announcements.
All of us have to be concerned, what is going to be enough, are you spending enough, are you taking enough care. Absolutely right for you to ask this and that will be my concern too. But what is going to be enough (is not known). What is going to be enough, even if I know, let’s not simplify the complexity of the problem… because the displacement and the type of displacement and the notional cost of it, the uncertainty it will lead to about how, and if at all, will they come back. And if they don’t come back, they are there — a place from where they chose to come to the city for jobs — what are the options available? Therefore, the kind of uncertainty this itself has created, is something you can’t gauge. And if you can’t gauge, if people in the ground can’t gauge, and based on that if I have to make my assumptions, what is enough? I don’t want to sound as if I am warding off an answer, but honestly I am confessing at this stage, I don’t think any government has an idea. Neither the states nor the Centre, or even countries abroad.
Doesn’t this expose the system’s inability to comprehend the problems that migrants face?
All of us, the Centre, states and local bodies should now realise that we should document the presence of migrants at the level of the smallest unit, local body or municipal ward. If there are ten migrants working in my ward, I should know. The data should be there, the company should give the data to the local body, there should be a documentation on how many and from where, nothing more, where is he employed, because ultimately, the employer together with the government has to be responsible, we can’t just (wash our hands off).
In recent announcements, you argued for greater entry of private sector in coal mining and a policy on Public Sector Enterprises which encourages private players in most sectors. In this light, does the government also plan to privatise railways and public sector banks?
No. If I had something I would have announced it. I don’t have anything. Of course, in the Budget speech if I have said anything that will get added to what I have announced now.
There is also a strong and forceful argument that higher cash transfers of — say around Rs 3,000 a month — could have been made to the migrants, equivalent to wages/ income that they have lost during the lockdown?
I am not objecting to this suggestion. I repeat my answer, yes it was a suggestion we have heard, we have taken that into account, we have thought about it. In a way by extending the banks to reach out first without additional collateral for every small unit, let them refuse (to take) it, but you approach to give. Automatic is the word I use, what is that aimed at? It is aimed at giving some money to meet the fixed cost, it is aimed at giving some money to make sure that some payment for the wages are made. So that’s what we have done. I have made sure that banks will extend the loan. Yes, it’s a loan, it’s a credit. Yes, it’s not a grant. But that’s where I am asking, grants for how many, of how much?
Many have appreciated the guarantee on MSME loans but many sectors like aviation, tourism, hospitality, which required direct support have been left out.
Hundred per cent guarantee and I repeat for stressed, for NPA and for viable running units which had to shut down because of the lockdown — all three. I have not excluded any of the MSMEs and we have also widened the definition. So when I go back to talking about this, is that sector specific, no. And I can’t imagine any business, doing its business 100 per cent with its money without the bank involvement. Banks are involved in funding everybody. So my assumption is when I have said MSMEs with a widened definition, stressed NPAs and viable, will get the assistance with the government giving guarantee, so that the banker does not worry because that’s a genuine worry that the banker has. You are asking me to give more loans, you are asking me now to give additional loans, what if the decision goes wrong, meaning I genuinely give it, that firm is unable to survive, it collapses in spite of this money, will I be held responsible for the loss of money. That’s why we have said 100 per cent guarantee, the government stands guarantee, give it, I am not pulling you up nor will I blame the business which has collapsed because it could not survive. So I am not questioning a commercial decision, on the contrary, I am guaranteeing it, I am asking the banks don’t ask for additional collateral, if he’s doing business with you, do it, give it.
Could this have been extended to larger enterprises?
Banks also have an assessment of larger enterprises and to a large extent between them both there is a clear understanding of what level of assets, securities and worthiness, and therefore there is never a hesitation in decision making. There is a hesitation more with the MSMEs.
You have increased the borrowing limit of states but made much of it conditional on a set of reforms being implemented. Is it possible that the Centre borrows funds and on-lends to states lowering their costs?
Bond yields are very high, that’s a problem for me too. Yields being high is going to hit me too. You can suggest that, but we have chosen to do this (increase states’ borrowing limit) because many states didn’t even use their 3 per cent (of GDP) limit fully, when it was all normal last year. Now nothing is normal, I agree. And now even as they have not utilised majority of the limit that they can utilise in the first half. In the first half, let’s assume that 50 per cent of the 3 per cent of GSDP is what you borrow, we have already allowed them to go up to 75 per cent. Second, even from that first half total that you can borrow, if that total is 100 in the first half, you have done only 14 per cent of it, the rest 86 per cent is still available. But still chief ministers were writing, state finance ministers were writing (for a higher borrowing limit) and we readily said go ahead with it — 0.5 per cent extra borrowing unconditional. But what is the kind of condition (for the remaining borrowing limit) we have put, and is it a figment of our imagination? It is something which the Finance Commission has recommended. If all of us are talking about migrant workers now, actually this problem would be less, if the country had One Ration One Nation card. And that’s what I am asking you to do now, make sure that your ration shops have swipe machines, make sure that your ration shops are digitised, make sure that anyone using the smart phone can withdraw as much as he wants provided that his family has not utilised it fully. Second, what am I asking them, do power distribution reforms. I am given Rs 90,000 crore, I am not saying I am doing them a favour, but in many states farmers have been given free electricity, and not withstanding the UDAY scheme, I am still facing this problem. So I am saying please reform these and take another 0.5% (of GSDP as extra borrowing). But, no, no, how can you put a condition? Have I asked you to do something which is unknown, totally new? We are living with this problem for 30 years, power distribution. And Modi sarkar, between 2014 and 2019, came up with the UDAY scheme to reform it. It is not new.
In the first two months, the Centre too has taken a big hit in its revenues. In this light, are you looking at expenditure cuts?
On non-essential items? We started that exercise prior to Covid, because at that time the Finance Commission was speaking to us (informally) that can you rationalise it, and even by that time, we were looking at the economy, and understood it needs more push. It was slowing down, we could see the green shoots but still you had to do a lot more. We had started that exercise. Yes, now I will doing it all the more seriously.
The Budget and now, what has changed in terms of your functioning, the challenges, this transition happening during the lockdown?
I had an excellent support of the Prime Minister, unbelievable. He worked as much as a Finance Minister should do in intensity, going into the depths. As a Prime Minister, he could have tasked all of us and said come and report to me. But he did all that himself, so begin there, downwards, excellent team of people around ministry, so they all together worked on it, it’s not me being alone.
Given that Delhi has been a hotspot, how did you cope with Covid personally, especially with your mother at home?
It was really really worrying. My daughter was like, because you go out and come back, make sure, stand outside there, and put dettol water on your feet, soap in your hands, remove your chappal, and all that. But because she was more worried about them, the elderly at home. That was the initial (reaction) when everything was, oh no, you have to be careful. Even newspapers, people said don’t touch it. Well, it wasn’t true at all.
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