Days after the passage of the Finance Bill and the transfer — and resignation — of her key adviser, Union Finance Minister Nirmala Sitharaman sat down for an interview at her North Block office on July 27 to National Business Editor Anil Sasi and Executive Editor (National Affairs) P Vaidyanathan Iyer. Edited excerpts:
How has been the shift from South Block to North block?
I don’t know yet; I’m just moving into a job. Don’t want to sound like I’m watering down the question. But it’s a great challenge …and (there’s) great support from everybody.
Is there a difference between how you deal with issues in Defence and Finance?
Obviously, here, I have the comfort that my education was also in economics. There, I didn’t have that comfort. But the Defence Ministry institutions are far more well-established. It’s a world of personnel — ex-servicemen, industries that are specifically focused on defence. Whereas here, it’s the entire spectrum of the economy, every sector, every institution which has anything to do with these sectors, banks etc. So it’s a larger spectrum where not many institutions are well-established within the ministry, but Finance also has its own institutions, departments. They have their own institutional memory.
The Finance Bill is through, what is the sense that you get on how your Budget was received… and what next?
Today, the GST Council met. We went with a request to consider bringing down the rate for EVs (electric vehicles), but the council’s mood was to change not just the rate for EVs but also for chargers. The holistic picture is that we are going with a futuristic step. Today, manufacture or purchase of EV cars is not anywhere near compatible with cars that are petrol and diesel-based. So, it is a step that makes the government’s intent clear…Of course, electrical vehicles, per se, doesn’t mean non-polluting, non-fossil fuel. But the government’s agenda is well-established that generation of electricity itself will now move to more from renewables. Encouraging buying of such cars may not be today’s story but the story which is going to come.
The worry within the industry is that a deadline is being imposed, they are being forced to move at a remarkable pace…
Where is the deadline? There is no deadline.
For most two-wheelers 2025 and three-wheelers 2023. The total phaseout that the Niti Aayog has proposed. The concern is that they’ve invested quite a bit in the value chain.
There can be a lot of discussion, dialogue. But it’s not government’s policy. Niti Aayog can generate a lot of discussions which is good for the narrative. That’s where it is.
You were part of the Free Thinker group in the ‘80s in JNU. How does that translate into how you look at the economy?
Interesting that you should ask this. Free Thinkers (philosophy) is very consistent with what I’m doing. When we were talking about raising the tax on some categories, somebody did ask me how do you explain this? Why do you have to tax more? And when you have to tax more, who are earning, because of their sweat, and toil, or because of the business successes, and so on. I did use this expression saying, well, there has to be a redistribution of income and resources, there has to be, you know, wealth, there has to be some resources for the government to be able to do things. And I appreciate the success of these entrepreneurs.
But to bring it as a JNU philosophy is wrong, because Free Thinkers did not subscribe to what is presumed to be the JNU culture. I’m not talking about right or left. After all, what was Deendayal Upadhyaya’s Antyodaya? It was about taking care of the man last in the line… What was Jan Sangh? Free enterprise. Recognise small and medium industries, the backbone of this country. So if I’m recognising free enterprise, but at the same time thinking of the Antyodaya of Deendayal Upadhyaya, for people to say, what is this waffle she’s coming up, with the JNU memory in her mind. I’m sorry, please listen to what I’m saying in full. There’s absolutely no inconsistency with the Free Thinkers that I belong to and what I’m doing now.
Of course, in JNU, you didn’t just have Free Thinkers. JNU was a good university where you had all ideologies playing out. Sometimes, the students’ union got dominated by one ideology, some other time, a different ideology. But there’s nothing called a JNU ideology.
In terms of space for political talk about an alternate view… Is that freedom of expression as vibrant as it was those days?
In the university?
Yes, and even in India, as a country?
I don’t think anything has changed between then and now in the country. I’m not talking about JNU alone, even then, in JNU and even now in JNU, I would think the freedom exists, but in JNU there was a lot more sense of the debate happening and there was a sense of each ideology playing out for itself.
Now the impression that you may get, I underline, the impression that you may get, is that it’s too dominant with elements which are anti-India. That may or may not be (the case), but the impression that you get is even as a students’ union, the JNUSU, is now hijacked by forces which are anti-India.
Even I will, sitting in the government, not conclude that it is now completely taken over by anti-India (forces) but the playout of the anti-India forces and JNUSU, knowingly or unknowingly, becoming a part of that playout is what is a matter of concern.
But if you were to ask me then what about the country? India has always had these kind of debates. I find it strange that some sections would attribute it to post-2014 India, rather than think about the 60s and 70s India when the same thing happened everywhere. Extreme ideologies have played out at different times in this country with the same kind of impact and effect as what they suspect is happening now. I don’t see anything unusual in that sense.
The Finance Secretary being moved in the middle of the Budget Session. There seems to be a signal that people are reading.
It is part of a larger reshuffle.
Would you have rather that he’d seen through, at least, the Budget?
The Budget, as you said, is passed. The final details are all settled.
On the sovereign bonds issue, there has been so much written and there seems to be so much confusion. What’s on your mind?
I have stated my position in the budget speech. After that (I) have not said anything, either way. So where is the confusion?
A former RBI Governor did raise some red flags on the issue of sovereign bonds. So did a member from the PM’s Economic Advisory Council. Does the RBI have a view, and has it been conveyed to you?
Nothing that has come to me.
Would there be limits on how this would be rolled out?
I have not started working the details yet.
So there is no review of the budget announcement that a sovereign bonds issue may happen this year?
I don’t know. If anybody’s doing the review, it’s not me.
The proposal involving the surcharge is another thing that attracted a lot of debate. Is there a concern with the peak rate of over 42%? Is that justified in India? And does that impact the larger investment climate; is that a worry?
We wanted to bring the surcharge on those who were above the Rs 2-crore income and above the Rs 5-crore income in a calibrated fashion. It was a surcharge. And in the process, FPIs who were registered as trusts did have an impact.
So when this impact was immediately brought to our notice…one of the options available was that they could shift to registering as companies. (Then) a lot of people commented saying no, the shifting is not going to be tax-neutral, the shifting is not going to be easy, the shifting would mean a lot more effort. I’ve only said, look now, I thought shifting would be an answer. But if you have issues, do talk to me. Without any commitment, I will hear them. Let me hear them first.
So, the impact on FPIs was not really anticipated at that point in time?
No. It’s also a question of how many FPIs have chosen to register themselves as trusts. FPIs are also present in the name of companies… So, it is not intended to hit only at FPIs. Not at all. If I wanted to hit at FPIs, have I hit at FPIs registered as companies? No. So, I think it was wrong to interpret that we are against investors or against foreign investment.
Within the FPI segment, two different sections are being created. This leads to a lot of disparity in their own incentive mechanism, in the way they will look at the Indian markets. Are you open to addressing that?
That is why I said let me hear from them. Without any commitment at this stage, I’m saying let me hear them. Because the conversion is still possible. You can convert to be a company rather than be a trust. Let me hear them.
The broader investment and consumption downturn and the worsening economic crisis, especially on the rural side… monsoon not being that good, numbers that are coming out, like FMCG companies, vehicle sales numbers, including tractors and truck sales, point to the downturn intensifying. Is that something that concerns you?
Definitely, I intensively watch what is happening. Even as you are asking me, you’re moving from rural…moving further to say tractor and trucks and so on. So even as you’re asking or projecting a picture, which is right, all right, you’re talking about various different sectors, segments of the society. So each may be having their own reasons, which are unique to them.
So I am looking at each one of them. That is why my answer, particularly on the vehicles issue, buyers are not picking up vehicles… is one, as much as I hear that, I also hear reasons for it. Some who speak to me do say that the reason for buyers not rushing to get vehicles now is also this transition from Bharat Stage IV to Stage VI, directly leapfrogging Stage V. Now buyers are probably in anticipation that industry themselves would give something even as the deadline of January 2020 kicks in. So the decision is getting delayed or deferred.
So if that is one of the reasons, my intervention there can indicate something totally different. So I have to be cautious about how I’m going to look at that development.
Private investment has been very low. Not just this year…it’s since pre-2014 when policy paralysis impacted investments. And this continues. So how do you see impacting growth this year. We ask this also because the budget this year indicates growth higher than what the Reserve Bank also projected.
At this stage, what we are looking at is making sure that consumption is encouraged through various steps that we’re taking, actually get the money into the hands of people, rural, particularly. This whole DBT-based transfer of entitlements to those who need to get it and get it instantly, being enabled by technology, was one very big way in which we’re pushing money into the hands of people.
The second, to pump up consumption… through public spending on infrastructure, where your core industries will benefit immediately. Once you start laying roads, start building bridges, strengthening airport, seaports, once you start building inland waterways, you are indirectly or probably even directly increasing the demand for industrial material — cement, steel, concrete, everything else. So if those industries can see demand, their investment, therefore, should automatically be focused on expansion of the capacities or utilisation of the capacity to the fullest extent.
As you are spending on infrastructure, in-situ promotion of labour is what is happening. Giving money they need in their hands instantly is what is needed. So if government’s expenditure is diverted to only prioritising on infrastructure, the ripple effect, I expect, will be on labour, everywhere rather than concentrated in one place…The virtuous cycle kicks in from there. Consumption increases, demand increases, investment increases, as a natural course.
On the FRBM targets…why did you choose to better the target that was kept for the year — from 3.4 per cent of the GDP to 3.3 per cent — given that government expenditure is so vital for kickstarting growth?
That was in the interim budget. So when I’m looking at the whole year, I had to show that the trajectory is being kept. It’s not allowed to table or plateau. The glide path is consistent…
Is there enough space for the government to push expenditure given that the private sector is still not investing?
Two things (in) the budget are intended to help private sector investment go up. One is, when I’m looking at providing the window for NBFCs and making sure that the Reserve Bank and we work together on it. It’s not only to address the crisis, which the NBFCs are going through, but also for those NBFCs, who are still the main platform through which credit is reaching, we want to ensure that they are not going to be starved for funds.
I was glad that the RBI Governor spoke very clearly about the liquidity (so called) support crunch. He said liquidity is not an issue. But it is for the NBFCs to now move forward with that liquidity, identifying those borrowers who are worth lending to…whether they are car buyers or any other customers.
Second, the government was also very clearly showing an intent to not squeeze out savings, where, you know, every saving is being taken up by the government, that private investors, private borrowers in the country are left with nothing. So we are declogging that space so that it can generate a lot more borrowers, a lot more institutional investors can be supported. That’s another way in which I’m expecting private investments to go up.
When we speak with some big industrialists, they talk about a trust deficit between India Inc and the government. They also express concern about regulators’ freedoms. The Budget does talks about drawing a part of Sebi’s reserves. Would you like to respond to this?
Where it comes to Sebi’s capital requirements, their expenditure requirements have all been respected. Over and above that, where there are charges which have been collected as fees, obviously, legally, they are monies which have to go to the consolidated fund. So there is nothing otherwise being imposed on Sebi. So that the legality of what is being collected, (what) belongs to the public account, have all been assessed. Duly respecting their independence, duly respecting the autonomy with which they have to function. It’s not an encroachment.
On the trust deficit?
I have spoken about it in explicit terms in the budget, that India Inc is something which we respect; we respect them for the wealth creators that they are, we respect them for the job creators that they are and we want them to be facilitated. Otherwise, why would I keep the word which was given five years ago, in bringing down the corporate tax? Now 99.3 per cent of corporate tax (payers) are already been covered (by a lower tax rate). I keep meeting all of them. And also a positive working relationship with the Reserve Bank.
You warned the taxman a couple days ago, that they should not overreach given that the targets might be stiff…
Actually, no. This time, the revenue target is something which I have discussed with the revenue secretary, and with his team, and only then I arrived at something which is not at all demanding. And this I said on Income Tax Day in front of everybody. If it was too much of a target, there would have been a protest saying what are you saying, woman? You might be Finance Minister but what are you telling me…my targets are not difficult? No, there was a quiet acceptance. I had spent a lot of time (to ensure) that the (collection) is set at realistic levels and not ambitious, over ambitious levels.
Is there a concern that’s been brought to your notice that the taxmen are perhaps harassing taxpayers?
Obviously, because there are quite a lot of inputs, which come to me saying, there are people being harassed, and is it the policy of the government or is it individual, you know, fancy overenthusiastic officers doing it? Inputs do come and my opportunity to interact with my officials should be the best place where I can tell them, look, please don’t do this. We are with you, when you’re definitely dealing with people who are evading or avoiding tax. But when you’re dealing with people who are duly, you know, keeping their diligence, you don’t need to be overly enthusiastic now.
And you are sure targets would be met?
Absolutely, they are not unrealistic at all.