You spend on infra and you create a capital asset, jobs, demand: Nirmala SitharamanFebruary 12, 2021
Our priority was only to make sure that we come up with a budget which will help the stimulus. I think, honestly speaking, between the PMO, finance ministry and each department for its concerned affairs, all of us had spent a lot of time looking at what can be a meaningful and impactful budget. My focus was to get it making a difference to the economy. So, I didn’t think in terms of whether it should be a budget like 1991, budget like 1997. None of that. Honest work, that’s about it.
It would be fair to say that you don’t mind the positive reaction…
No, obviously, because you don’t need to be overworked by any one force or any one institution or any one particular sector’s reaction to a larger issue of a budget. And therefore, if somebody said, look, I can’t afford to lose my sleep based on the reaction, understandable. But however, when it presses the right button even for the stock market, and when I say stock market, not just one aspect of the market, equity, bonds, everything, it does tell you that probably you’re going the right direction. It definitely motivates you, there is no doubt.
The government has enacted a large number of second-generation reforms and some of these were announced in the budget. Do you expect a backlash?
No, see, I don’t think that any of what has been said in the budget is with an adversarial attitude. Steps will have to be taken as a responsible government and I’m conscious that the taxpayers’ money, as much as it is required for welfare activities, it should also be going towards those activities which will contribute to the economy. I’m not blaming anybody, but if, for instance, a public-sector undertaking has reached a stage where I put in the taxpayers’ money and do the best to revive it, not one year, not two years … in some cases even decades have gone with tax money being infused to revive them. But if after all that you are still not able to revive, but yet the economy sees a demand for more such enterprises…
The economy has businesses and also professionals, who think they can do a better job of running that institution, that asset, that public sector unit, who are essentially Indians for all considerations, Indian businesses, Indian investors, which can do a better job because every one of these units are necessary.
We need more steel-producing units, we need more of aluminium units and so on. But if the government is sitting over them but not contributing to the economy by better producing competitively priced steel, by producing better-quality steel, does it add to the strength of the economy or has it got to be shut, saying no, I can’t run it, I will close it?
What I’m trying to attempt here is, if there is skill outside, if there is money outside, if there is interest outside to keep it going as a running enterprise, is it making economic sense that the government give it to them? And in a transparent manner, not because he’s my chacha, he’s my bhatija, he’s my damaad, but openly. If there are people openly going to assess it for the valuation that it can obtain, and in a transparent process to pick it up and do it, does it not help the economy? Does it not save the jobs which are there?
These are units which have to contribute to the economy. I want them up and running. I have attempted to put money over and over again. It’s not just this finance minister, several finance ministers have tried infusing life into them.
If after trying so many times we are not able to make a difference to it, would it not serve the economy better if they are disinvested? And in a process which is open, transparent for everyone to see what’s going on. And it is certainly not going to be at the cost of people who are already there working in it.
We obviously have to negotiate with those bidders to see that the workers’ interests are safeguarded, not just for today but also if the commitment is to ensure that their pensions will be paid, it will be definitely something which I will have to keep in mind. So, these are things which are well thought through. Not to hurt any section, not to close viable units. In fact, even the not so viable units will have to be revived because eventually, the economy needs those produces. So that’s where we are.
“Rationalisation of rates, GST, looking at revenue neutrality as it stood then, as opposed to what it has become now, item by item are being worked out in fitment committee.”
Is there a public communication strategy to drive privatisation?
It’s not me for the first time talking about disinvestment. And every CAG comes up with a report saying what is going on? Why is it lagging like this? How do you improve efficiency? Why don’t you put more money? But where do you put more and more money from and be not accountable to Parliament? What returns are you getting for it? We will have to talk with everybody. We will have to tell them that we are not hurting any section’s interests, like the way I said.
Privatisation of two PSU banks was a big budget announcement — what will be their size and scope? The public sector enterprise policy has listed banking as a strategic sector, so what is the bare minimum level you are looking at there?
All these will be determined. It is not as if I will be able to say in my calculation this bank does not fit my bill so I am going to throw it. That is why we have said bare minimum. It may be four, it may be less, it may be more. Each sector which is part of the strategic list will be decided by the respective stakeholder to say how many can be meaningful for the government to be present.
What banks are you looking at for divestment – those doing well or those not doing well?
It is not so black and white. The character of our banks has been that the CASA (current and savings account) deposits are abundantly there in the east whereas the demand for credit is abundant in the western side. Now, does that mean that I go by only where credit is? Or does it mean here enough credit is happening but no CASA here? Do I go on that score? No, so there will have to be a basket of considerations.
We brought together banks with completely different capacities and we wanted to have the synergies of both so that the bank which has extensive network in a particular area comes in also, but that bank which is sitting over mounds of deposits also able to benefit but doesn’t have that many branches. So, like that it will have to be a basket of several such considerations.
The Reserve Bank of India issued a discussion paper that suggested industrial houses could get into banking…
First of all, is this the first time that the RBI has allowed the corporate sector to have a bank? Earlier, what was IndusInd Bank? So, this is not the first time and I’m not speaking for the RBI. This is an RBI paper, I’m not here to comment on it and I don’t think the RBI has even approached the government saying this is what we’re doing. It will be too pre-emptive of me to speak about it. But then the fact remains, is it the first time that we are talking about it in this country? Not even talking, it has happened earlier. What is Bandhan Bank?
But that was an exception, in the mid-90s…
Exception or mid-90s or whatever … it’s not the first time, but even if it’s going to happen, let’s see what the RBI is going to do about it. And beyond that, this question of will there be overseas companies which will be allowed, these are questions which are for later, not for me to talk about it now because it’s not yet even on the table.
On the farm agitation, has there been a failure of communication?
The government is continuously talking to them. It’s in public view. The Vigyan Bhavan is not a private house. Talks, if they don’t end with a resolution within one or two sittings, we have not shut the door after that. If the government is saying, please talk, and we are willing and open-minded to tweak anything, amend anything, isn’t that a beginning and isn’t that enough to start a negotiation. We are clearly saying, look the farm laws are there for the benefit of farmers. The Prime Minister mentioned so clearly while speaking that he has kept the small farmers in mind and also showed how at various times all political parties have spoken similar language which is there in that.
I therefore think the hypocrisy, the U-turn of the opposition, has to be called out by the media. I would want the media to ask them that how did you change your position? It’s not a random statement, your manifesto … promises made in Parliament, particularly the Prime Minister. Manmohan Singh, I remember it in the context of Andhra-Telangana, the state bifurcation. So, ask the Congress party, why is Dr Manmohan Singh’s word good enough when you’re talking to us about Telangana and Andhra and why is it not good enough when you’re talking about the farm laws? Why is it that Punjab, whilst having contract farming in its own state, suddenly says no, it’s not good enough? Protests are the right of people who think they have an argument for protesting. I concede that. But the government is also willing to talk.
Please have as much support as you want from India, from any corner of India, I have no problem. But you’re revelling in a support which is outside of India. Can the media please call this out?
“The govt alone, cannot, for the medium term, be the force to change. It cannot just be the single catalyst to keep the economy going. It has to be together with the private sector.”
What made you go more in the direction of infrastructure spending and not cash support in the budget?
You spend on infrastructure, you create a capital asset, whose effect will be on the economy for the next couple of decades. It gives you instant jobs. It triggers demand for core industry products and, therefore, moves to trigger the virtuous cycle. So, I went on this route.
There’s a complete shift in the pattern on the fisc in this budget. What prompted this paradigm shift?
The way you have put it restricts it only to the fisc, right? But I’m also looking at it as an opportunity taken for the second-generation reforms. So, to get on with the reforms and to get on with the stimulus being given through funding public infrastructure, it gives a clear direction towards that the government alone cannot be the stimulator. The government alone, cannot, for the medium term, be the force to change. It cannot just be the single catalyst to keep the economy going. It has to be together with the private sector. And, therefore, you find that when I’m establishing an infrastructure project funding developmental institution, I give a public institution and equally play for the private sector.
When I’m looking at banks and their assets – because banks don’t have the capability to clear all the bad assets – they don’t have the wherewithal to even value them. If they were like trickles, they would have done it in the course of their other business which are core businesses. So, I’m creating an institution, not the government, the banks themselves. But even there we are bringing in for fair valuation, for market valuation for transparency, such institutions from the private sector. So, you see, in every one of these kinds of steps that the government is taking, we are opening up the opportunity for private also to play a part. We wanted to equally open and give play for private. So that’s the directional change. That’s probably, very clearly, I would believe an articulated mindset change.
And that policy, and I strongly believe and I’m very happy, reflects the way in which the Prime Minister understands and functions about as his approach to the Indian economy. This is exactly what he successfully proved in Gujarat, which we are taking forward. And this is very much in line with the Jan Sangh and BJP belief that the Indian entrepreneur should be given maximum opportunity.
The monetary policy framework is coming for a review. Are you reviewing the 2-6% target inflation band?
We’ll have to review it to see how we want to handle it. We’ll be reviewing it.
The finance commission has suggested merging 12% and 18% rates under GST and moving to a three-slab structure. What are your thoughts?
Those are things which are in very rudimentary early-day discussions which we’ve had in the GST Council now in more than two sittings. But the time and the timing were not thought to be conducive in the last two meetings. The rationalisation of the rates, GST, looking at revenue neutrality as it stood then, as opposed to what it has become now, item by item are being worked out in the fitment committee. I have more than once referred in the council that this is something which we have to go back to looking at with an open mind. We have proved it to the council that in more than one or two instances, because of the inversions which have set in in the duty, we seem to be paying more refunds than collecting tax. So, the council is fully seized of all this. We will definitely be talking about it whenever the council finds it fit, sooner I suppose. Whether it will be the next meeting itself, I can’t speak for the council as yet. We’ll have to see.
The monetary policy committee (MPC) has flagged high taxes on fuels and how the high fuel prices were feeding into inflation. Is there a case for a tax cut on fuel?
It’s a kind of a commodity about which just one government – assume the Centre and so many states, even one state or one Centre – talking is not going to help. This is because nobody can be blamed if they thought that this item is also a revenue-generating factor. Now the Centre goes at it with a fixed rate, states go at it with a value of percentage, ad valorem basis. And, this is a sort of a mind game. I’m quite happy to withdraw. Is that space going to be left vacant or somebody else is going to come in? And assume one state comes in, every other state thinks why not us because everyone wants revenue … I vacated and take a moral high ground – is that revenue going to go away somewhere? And why not? Let them take it? But does it answer the final question of the monetary policy committee? It’s that kind of a complication. We’ll have to see how we can navigate.
“Each sector which is part of the strategic list will be decided by the respective stakeholder to say how many can be meaningful for the government to be present.”
Cairn chief executive officer will be here to meet you soon. What call has the government taken on the arbitration case?
I need to hear them. I’ve authorised the finance secretary to talk also. He and his team will meet them. I don’t know what they are going to say. We’d like to hear them.
Has the government decided to appeal against the arbitration award?
Of course, in the sense of the larger principle, that government’s right to tax cannot be questioned. I don’t know what they’re coming to say to us. I’d rather hear them.
The proposed bad bank will be like any other asset reconstruction company without any government investment, so how will it be different from those that are already present?
The formulation you’re suggesting to me need not be the only way. The government influences money, you have a momentary comfort. It doesn’t work out well then you will come back that you invested, you wanted to run it and then. It’s also the way in which the RBI, the banks, all of them are going to look at it and create a holding company into which these assets go on. The holding company will then look at how to dispose of it and in the disposal, private participation also can happen is what we are suggesting. So, in that holding company, if the banks, all of them, are putting it together, through the Indian Banks’ Association, in a way, it’s us. The banks are government banks. The methodology is something which, together with the Reserve Bank, we are working as to which will be more professionally competent to do it. We can’t have it both ways. The government runs it, you have the confidence. But the government is incapable of running something very technically, professionalised thing, so we’d like to accommodate that.