The second wave of the COVID-19 pandemic came as a Tsunami threatening to derail the economic growth, but Union Finance Minister Nirmala Sitharaman expresses confidence that the government has it under control. In an exclusive interview with Group Editorial Director Raj Chengappa and Business Today Editor Rajeev Dubey, she outlines the revival plan. Excerpts:
Q. How does it feel being the finance minister when all the major economic indices, including the GDP, are down? Don't you feel depressed looking at the numbers?
I take it as a big challenge that calls for a lot of focus and attention to make sure that we are able to, every now and then, come up with steps that will help people. I don't want to say numbers do not worry me, but I also have to think of the sufferings of people on the ground and the tragedy that has struck so many families. So, that is something lying heavy in my heart. I have to respond in such a way that it is addressed even if not completely resolved.
Q. The Modi government has got plenty of flak for its handling of the second Covid wave.
I won't blame anybody. The immensity of the problem, the speed with which the second wave attacked us, people have obviously gone through a very deep, tragic experience. It is natural for the government to be questioned. We have to quickly extend help to the people and ensure that the system is improved.
Q. Despite the relatively encouraging Q4 results, India's GDP contracted 7.3 per cent overall in FY21. What is your assessment of the macro-economic impact of the lockdown in various states during the second Covid wave? How sure are you of ushering in the economic growth India needs to get out of the rut we are in?
First, it is too early to assess the impact of the second wave. It's different from last time; it is now being managed by the states with lockdowns of varying intensity. The scale and intensity of the second wave are sharply different from the first one. Secondly, the Aatmanirbhar packages we announced-some of them just before the Union budget-have shown results. The budget was prepared at a time when we were faced with an economy affected by Covid but were not aware of the impending second wave. So, it's a budget tailored to meet the outcome of a pandemic. The budget itself addresses it: the immense increase in infrastructure spending, similarly capital expenditure on health infrastructure.
Q. What makes you confident that despite the impact of the second Covid wave on the economy, Budget 2021 will be up to the task?
It's an intensely prepared budget with a lot of inputs from stakeholders, and the priorities placed right. The budget, if seen through the year in true letter and spirit, will be up to addressing many of the problems relating to, and arising from, Covid. Alongside, we will keep interacting with the states and industry to see if there's need for me to do anything more in the course of the budget itself. It is important to recognise that the GDP suffered a big contraction in the first quarter [of FY21]. No other country's GDP, I am told, contracted 23 per cent. But I am immensely thankful to the prime minister because he kept holding consultations with stakeholders and sitting with us and working things out. We came up with five different [stimulus] packages. By the fourth quarter itself, we made up for the negative growth. Moving to a positive number couldn't have been possible without the people accessing these packages. Above all, the people trusted the prime minister and his way of leading from the front.
Q. GDP growth was on the decline even before Covid struck. So, is there a systemic or structural issue, beyond Covid, that needs to be addressed?
Let's take a long-term view while talking of issues like GDP. Look at how the GDP has gone up and down, especially since 1991 after the opening up of the Indian economy. If you want to pitch it just to 2018 and 2019, consider the fact that we belonged to the 'fragile five' club of economies, which we inherited in 2014. To some extent, GDP growth is cyclical. It has never been up and up. I wish it was.
Q. The Covid waves have caused massive job losses-some experts estimate it to be over 20 million. The other major setback is that after decades of decline, numbers related to poverty have gone up and there's talk of new poor being created. Are you proposing any stimulus or cash bailouts for them?
As I said, the budget was prepared in the context of recovering post Covid without being aware of the second wave. We have made big provisions for infrastructure, which has had a bearing on jobs, and for public expenditure in health, which will make a big impact on the health indices. For farmers, apart from benefits from the PM Kisan Samman Nidhi scheme, we have made wheat and paddy procurements like never before at MSP (minimum support price) this year, through DBT (direct benefit transfer). That means money going into the hands of farmers, which will have an immediate impact on the rural economy. Also, we are again extending the scheme for people to able to draw from their EPFO (Employees' Provident Fund Organisation) accounts and ensuring that children orphaned during the pandemic are given a substantial amount as corpus for their future.
Q. Experts say it's time to give cash in hand to both the urban and rural poor. What is the government's approach on this?
You are insisting on knowing if this government wants to do what the Opposition has suggested-some sort of cash transfer to the people.
Q. Not just the Opposition, even experts have recommended this.
We do intensive studies to see what can be worked out and then take a call on how to provide further stimulus. If you are pointedly telling me that people have told you cash transfers should be done, my answer is that I am hearing a lot of people give a lot of different suggestions.
Q. Some experts have also advocated printing money to generate resources.
If you are offering that idea to me, I will take it.
Q. What about the disinvestment programme?
The disinvestment programme is on track. We are committed to everything we said in the budget.
Q. So, there is no pullback on the bold new deal you presented in the budget, including privatisation and asset monetisation?
Absolutely, you can ask me about Air India, BPCL-you can read out the entire list approved by the cabinet and I will tell you it's on track.
Q. And there is no reneging on privatisation despite pressure from organisations like the Swadeshi Jagran Manch?
It is absolutely on track. It was all laid down in the budget and approved in Parliament, and I stand by it. It is our budget.
Q. A recent FICCI survey indicates business confidence has nosedived. Among their suggestions is income-tax relief for the middle class and reduction in indirect taxes for businesses. Your views?
I find this concern for the 'middle class' repeatedly brought up. Don't the middle class among farmers benefit through government procurement? Haven't middle class homebuyers got relief through the SWAMIH (Special Window for Completion of Construction of Affordable and Mid-Income Housing Projects) programme? Likewise, there's the Emergency Credit Guarantee Liquidity Scheme (ECGLS) for the MSME sector, through which 20 per cent of their outstanding credit is given as loan, without any security, for which the government stands guarantee. Now, that 20 per cent has been increased to 40 per cent. Aren't there middle-class people running them?
Q. Government capital expenditure, especially on infrastructure, seems to be the only engine working right now because exports, private investment and consumption have their constraints. How does one get the other engines to fire too?
I would like everyone to get out of this 'four engines' blazing concept. Yes, the four engines of growth have to work. Attributing all to one engine at the cost of the other three is no longer valid. You may say they need to work faster, be more energised, but to think that three have collapsed and only one is running may not be correct. Post September 2019, nobody knew what was going to come. Corporate tax had been reduced and I was accused by many of favouring the big corporates. There was talk that they saved a lot, were offloading their debts but not spreading their benefits. I have no problem with them offloading their debts or earning profits to use it the way their shareholders have approved. But it is also true that post that move, you find many more of them going into detailed planning for expansion, looking for FDI for joint ventures. Look at the mergers and acquisitions that are happening, look at the number of middle-class Indians wanting to enter the stock market because they find transparent, well-managed companies to invest their money in, rather than the low-risk bank savings.
In terms of consumption, look at the rural Indian consumption figures before the budget and now. It must have slowed down a bit in early April, but tractor and agriculture equipment sales and FMCG (fast moving consumer goods) sales are there. I am not saying that everything is hunky-dory, but we cannot think that it is completely off.
Q. Are you concerned that there could a serious impact of Covid-19 spreading to rural areas in the second wave?
A. Even this year, rural India is working, which is why you have production of various crops and preparations for sowing the next crop. The mandis are very active. The prime minister had earlier told [chief ministers] to take care Covid does not reach rural areas. The concern that it would spread to rural areas was already there and, therefore, precautions were voiced and we are following them.
Q. Will you be revisiting the budget numbers owing to the second wave?
Not at all. We are only in the second month of the budget.
Q. Most experts say that the majority of the population needs to be vaccinated quickly in order to avoid another pandemic shock. But the central government has come in for flak, even from the Supreme Court, over the vaccine policy, including the delay in placing orders for sufficient doses and the confusion caused by states also being asked to purchase vaccines to meet their needs.
Since October last year, negotiations were on with the vaccine manufacturers. The prime minister himself went to the factories of vaccine-makers in Gandhinagar, Pune and Hyderabad and encouraged them. The inventory they held helped in a big way to launch the vaccination drive on January 16 and inoculate all frontline workers and those above 60 years. The Centre bought these vaccines and distributed them free. In April, we opened up vaccination for the 45-plus segment, again for free in government hospitals. Even these doses were procured and sent by the Centre.
Since January, there were calls as to why the Centre should do it, and that it should be left to the states. I am not holding them responsible, but it was a credible, repeated, loud voice. So, the policy was made in such a way that we take 50 per cent of the vaccines available and keep them going free, and the states take the remaining 50 per cent and do what they want with it. And in this, if a small quantum has to be left for the big hospitals, which can afford to buy and administer it to their patients, that should be opened up-that's exactly what was done. This was a change brought about after loud and clear voices from the state governments.
Q. What about placing orders early enough as countries like the US did?
As regards not placing orders early, how could we have given vaccines by January 16 unless the entire backlog or stocks with the vaccine producers came in? What they are producing is what is being obtained, and that too is simultaneously being ramped up. We are finding newer, idle capacities which can be used to enhance production capacity, and because of which we get more vaccines in June and even more in July. We are also importing vaccines, such as Sputnik V, for domestic production.
Q. Even for the universal immunisation programme, it was the Centre that purchased vaccines and distributed to the states. So, why the change? The charge now is that with states competing to procure vaccines, manufacturers can jack up prices.
Good logic, but should you be asking that to me or to the people who said, why should the Centre buy?
Q. Why did you listen to them?
Had I not, you would have asked me questions on federalism. It is not for me to judge, especially when the states asked for it and we heard them out and yielded.
Q. Why doesn't the Centre take it over again and end the confusion?
You have told me and I take it as a suggestion.
Q. The government is also facing criticism for rising inflation, particularly the fuel prices. Is there an option of cutting fuel prices?
On inflation in the prices of pulses, edible oils and other essential commodities, a group of ministers have been regularly going into the reasons and discussing allowing imports while ensuring that our farmers don't suffer because of a crash in prices. They also make sure there are no supply chain constraints or hoarding. On fuel, the Indian prices are fixed almost on par with global ones. As regards taxes, the central government does not do it at ad valorem; it is a fixed rate irrespective of the price of oil. What states get is ad valorem; with every increase in the price of oil, they get more revenue. So, the issue of fuel price is layered between the Centre and the states. Above all, we have to remember that the central government does not determine the prices; these are determined by market forces.
Q. You infused enormous liquidity into the economy, but that has also caused inflation. What are your options in a 'devil and the deep blue sea' situation where the economy needs liquidity but inflation is raging?
Liquidity is necessary at a time when businesses are trying to come out of difficulty. The RBI (Reserve Bank of India) manages liquidity. I keep exchanging views with them. DEA (Department of Economic Affairs) works closely with me. We are in close coordination with the RBI so that sudden sucking out of liquidity does not affect fledgling businesses. Banks have been given enough leeway so that they can lend as and when businesses approach them. The bank situation and bank books have all definitely improved so they are in a position to make provisions for these. Lending is also happening with sovereign guarantee. Banks know they are not worse off and have to extend loans as per ECGLS, which we have now opened up for more segments.
Q. In terms of ease of doing business, there were complaints about 'tax terrorism', apart from the ED (Enforcement Directorate), CBI (Central Bureau of Investigation) and CVC (Central Vigilance Commission) creating an atmosphere of fear among entrepreneurs. How have you changed that perception?
We have repeatedly held meetings with the CVC, CBI, ED and banks and conveyed that we have to be a lot more professional about dealing with taxpayers. Banks have also realised that genuine commercial decisions will have to be appreciated and if something has gone wrong, it is for the customer and the bank to sort it out. So, this has not only helped in revenue generation but also in building a clear picture of what this government intends to do.
Also, as committed by the prime minister, we have brought in faceless assessment and faceless appeal for taxpayers, and all because we have adopted technology fully. Even when you go for an appeal, you do not know who your assessing officer will be. In this budget, we have made a significant change by ruling that no income-tax assessment record can be opened beyond six years. People have seen that what the prime minster said in terms of doing away with tax terrorism has actually happened in so many ways. I think there is a general sense that we mean business and are not here to harass people.
Q. Is the spike in GST (Goods and Services Tax) collections because people are scared of raids and are voluntarily paying up?
It is true that our officers are using artificial intelligence to look at data and seeing where the evasions are happening. We are now able to not only spot where the problem lies but also trail the connections. At one go, you can point to a shell company that has done some evasion or gamed the system. From there on, the leads are automatically generated through technology and you are able to trace seemingly unconnected people. This has made people realise that they cannot remain untraced and it has helped raise more revenue.
Q. Do you think Covid has caused a dent in the spirit of federalism, especially the tussle over GST?
What tussle? I would like the media to be better informed about a federal body like the GST Council. When finance ministers of states-some of them chief ministers holding the portfolio-meet, there will be discussions, rebuttals and arguments, but that is the forum for that. Is that a tussle or a dent in federalism? The GST Council is the body for discussion under a federal template. When we said a Group of Ministers will decide on the tax exemptions for Covid treatment items, is that an amicable way of arriving at a solution or adversarial? To the credit of every member of the GST Council, they are being absolutely statesmanlike in their behaviour.
Q. Has there been a swarm of NPAs after ECGLS and the incentives and deferments that have been allowed? Are banks and the finance ministry concerned?
No, if you look at the steps we have taken. We formulated the ARC (Asset Reconstruction Company) model in such a way that NPAs (non-performing assets) will be shifted to a holding company, which, after due diligence, will invite asset investment funds to bid for it and take it. So the way we have planned it is that banks are sure that those NPAs which have been around for quite some time-not Covid related-will find their way out and they will get their due share at first go, in some part, and at the final stage when it is getting sold out. The rest of it will come to the bank.
Now, during 2020, we suspended those sections in the IBC (Insolvency and Bankruptcy Code), so no one can take people for insolvency because of Covid-related failures. It has helped and now, we are clear that with IBC, ECGLS and the additional support being given, many of them will be able to survive and move towards better days. There is a continuous monitoring of the stress levels of commercial operations by banks. I am also asking the ministry of corporate affairs to deal with companies and understand the stress level that they are finding in the markets. So, through the corporate affairs ministry and banks, ministries are doing real-time monitoring. With that, we are able to address that problem and prevent people from falling off the cliff.
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