'Public Expenditure Will Lead to Crowding in Private Investments'

The Union Budget for 2022-23 has been hailed for looking at longterm, sustainable growth, where the government has focussed on capex to revive the economy. Finance Minister Nirmala Sitharaman, in a freewheeling chat with Business Today’s Rahul Kanwal, Sourav Majumdar, Udayan Mukherjee, Siddharth Zarabi and Aabha Bakaya, spells out why she took the capex expansion path and why the reduced disinvestment target doesn’t mean the government is less enthusiastic about privatisation. Edited excerpts:

KANWAL: Some economists said the need was immediate [relief ]... when you should have been pumping up your revenue expenditure to provide succour to people, you’re choosing to look out into the future [by focussing on capital expenditure]. By then some of those people would have drowned economically. How do you respond to this?

A: I’m actually providing a certain continuity from last year’s Budget... something I’d like to reinforce because some critical policy prescriptions were made last year. [For example], privatisation, the policy for public enterprises, the opening up of all sectors for private participation—inclusive of space and atomic energy... So, that Budget with a blueprint for the next decade or so continues. With the second wave and Omicron, that Budget which came with some prescriptions last year, we are reinforcing that formula... the formula is public investment in infrastructure building—that is capital expenditure.

It is well established and data proves that for every rupee that you spend in capital expenditure, the multiplier is about 2.9-2.95. Whereas if you go through the revenue route and give some money in people’s hands, then it has a multiplier of just around 0.95. These numbers can be questioned, but they can’t be very different. So, would it not be, therefore, right for me to continue with that which had started last year in investing in public infrastructure with public funds and hope to have the private investments also come in, because gradually, globally, India’s exports are doing well, Indian demand is doing well. Therefore, they can expand on capacities. With this, I aim to have public expenditure commencing and leading to a virtuous cycle of crowding in private investments as well.

MAJUMDAR: In the next two quarters, there is a view that pent up demand will come back. Do you anticipate that, maybe after the next two quarters are over, for private investment and your capital expenditure budget to work adequately, we have a growth trigger in case pent up demand starts receding?

A: The response to the government’s PLI scheme has been absolutely tangible, which means investments are happening. Second, the corporate tax reduction which happened in October 2019, we had said that it will apply to all new manufacturing capacities that are created till March 2023. Now we can see this potential of expansion, new investments happening. So, on that strength, we have extended it... on the demand coming from industries which have actually started putting money. And they just want to be sure that they wouldn’t miss that opportunity by not being able to have manufacturing commenced—which is the condition—by March 31, 2023. So, they have asked us to extend and we have extended the date.

All these indicate to me that private industry is coming in with additional investments, and also expansion and capacity. Again, for the way in which our exports have ramped up, that couldn’t have happened without capacities being brought in to meet the demand coming in from expanding exports. Now, whenever you expand exports, it’s also because production within the country is growing—and that means more jobs... There can be more jobs happening, I also will concede that, but jobs are happening.

MUKHERJEE: Of the Rs 2 lakh crore of additional capex you’ve laid out in the Budget, Rs 1 lakh crore is through the states. We’ve seen in the past that outlays on capex don’t achieve the kind of project execution that you set out to do. Do you fear that because of execution issues, particularly because this time execution is also equally dependent on states, you will not end up achieving the kind of multiplier effect that you’re setting out to achieve?

A: It is a reasonable doubt to have. But during the Aatmanirbhar announcements, we had first come up with this thought of giving states some money, without charging them the interest even if it was borrowed money... it was very well received and states benefitted from it. When I had a consultation with chief ministers and [state] finance ministers prior to preparing this Budget, there was very clear desire that if we [could] fund them for building their infrastructure, they would be in a position to spend. They didn’t indicate any amount, but we thought we found an effective route and we wanted to share our resources with them. And that is why it is an interest free 50-year Rs 1 lakh crore being given to states. And I see a great enthusiasm among states... they are already coming up with ideas... So, I’m very hopeful this will get utilised.

[Coming to] central departments, last year where we had given something like Rs 5.54 lakh crore, we at the RE stage are able to say that even by March 31, we would reach Rs 5.51 lakh crore... Now, that is after quite a bit of talking to the departments and asking them to meet up. I have had several reviews every quarter. The Cabinet Secretary also had reviews; once the Prime Minister also spoke in the Cabinet about it saying that’s the only formula through which we can revive the economy.

[With] the second wave in April last year and now with Omicron, you are reaching that Rs 5.51 lakh crore in these trying times. I am sure in the coming year, departments would be ready and they’ve got the formulation with which they can execute it even in difficult times. This time, I am sure to achieve that Rs 6.5 lakh crore, which is going to be used by the central departments and that Rs 1 lakh crore, which is going to the states. So, I quite understand your worry; I’m with you equally worried but wanting [it] to work because I can see the potential of it getting used.

ZARABI: One of the ways the government proposes to finance the future spending plan for the next year is to borrow a lot of money from the market and you yourself must have noticed and gotten this question on the bond market reaction. Would it be a fair assessment to say that perhaps you have outlined a very large borrowing target? However, with better small saving deposits, with perhaps the entire disinvestment proceeds coming in non-tax revenue in the form of dividends, you may not need to borrow as much?

A: You have fairly covered what I would have used for an answer. I think the bond market’s response post the Budget was [not] because of the Budget. If I were to look at the bond market’s performance, prior to the Budget they had already become a bit jittery... And I would think they are more jittery about the US Fed and the decisions of various central banks after that. It is less because of what I’ve said in the Budget.

KANWAL: Of all decisions you took in this Budget, the one that’s generated the maximum amount of chatter is your announcement that you will be taxing crypto assets at 30 per cent. So, my questions are the following: whether the tax comes first or the law comes first, it’s a chicken-andegg? Second, how do you see this framework evolve... will we launch a digital currency this year, and if we do, what form and shape will it take?

A: No [it’s not] chicken-and-egg, I will tax first. Well, that [the launch of the digital currency] will largely depend on how the Reserve Bank of India (RBI) would want to handle it. Obviously, for any announcement pertaining to aspects which are under the RBI’s domain, the ministry talks with them, gets the inputs and only then comes on board. The consultation [on crypto, etc.] is happening. We will have to hear everybody and after that we are going to see how best [and] what we have to do [and] we’ll do.

MUKHERJEE: You’ve clearly demonstrated a very strong intent towards privatisation and disinvestment in the last couple of years. But despite fairly buoyant market conditions, those targets have never been met. And this time you scaled down your target to Rs 65,000 crore. Is this because of a pushback from certain segments of the economy, unions, or lack of consensus within the Cabinet or the government that you are showing less enthusiasm to the original idea of disinvestment? And why are these targets, despite favourable market conditions, never being met?

A: There is no lesser intent being shown. We’ve had our share of difficulties. We went through a stage where absolutely essential things were being taken up in 2020-21 and 2021-22. And even amidst all this, we’ve managed Air India. So, we’ve not given up on what has been cleared by the Cabinet. [I had] broadly mentioned as a policy in the last Budget, where I listed out the names of those which have to be going out for disinvestment. We shall continue with them.

One thing which I have very clearly taken forward and insisted on is to be realistic. Your numbers have to be realistic, your assessments will have to be realistic, and your work will have to be realistic. And we had that focus through Covid-19, one output of that is the way in which revenue has been really improving and buoyant. Again, I will remind you, in 2019 one thing I’ve heard repeatedly from everybody was... ‘tax terrorism’, people are being harassed. I want to say today that because we have adopted technology and used faceless methods, we were able to plug all the loopholes and improve on revenue generation; other than the fact that it is buoyant because activity’s been recovering. So, like that in disinvestment, no hesitation, no taking a step backwards.

ZARABI:In the past year or so, we have had a situation where public sector banks are in a much better place due to your initiatives; corporates are much better placed; there is so much liquidity infused by the RBI. Yet private investment is lagging and that would have led to job growth. Why is the private sector not kicking in and why it is only left to you and the government to do the heavy lifting?

A: I don’t think the private sector is not coming in at all... they’re coming in, maybe not in the kind of scale and number you and I would want. And there’s also a reset happening in the economy. There are newer sunrise sectors, which are a lot more prospective. And therefore, I think industry is also looking at very many things. And skills are playing a very big role in the way in which manufacturing or services are going to work out. I was pleasantly surprised reading in one of the newspapers, that particularly in the services sector, the skill which people are looking for is very much available in India, and the youth that they are looking for with a certain skill set is available. So, services sector is benefiting out of it. So, such changes are happening. I’m sure the private sector is coming in. It will ramp up even more as Omicron is receding... I think things are going to change for the industry as well.

BAKAYA: The youth are only concerned about taxes. So I wanted to ask you whether in the next year or two years, you see room for some relief on direct taxes?

A: Well, I thought we already started doing that in direct taxation, not in the last Budget, but the one before [that]; we had already given a parallel track of simple and more attractive rates if you’re able to give up on the exemptions. So, drawing people out of that exemption-ridden system to a simpler system has already commenced, and eventually I would like to have a very simple and low rate of taxation, particularly for direct [taxes], and make it more attractive for compliance.

MAJUMDAR: The Economic Survey talked about 8-8.5 per cent GDP growth for FY23, based on some assumptions. What are the key challenges in the next couple of years in sticking to this and the glide path on fiscal deficit?

A: It’s not shifting the ground from where the challenges arise, but there are essentially two which are not so much within India: the global energy prices and the rising prices of metals, ferrous, non-ferrous, and also the way in which global trade is turning out to be.

India is also looking to transition from fossil fuels to renewable non-fossil fuel-based energy. Like many countries, we also thought we can have natural gas as one of the transitions. Now, even that is important for India, since not a substantial amount is available here. Now, the prices of all these, whether it is crude or natural gas, all are going up. So, that is one thing, which certainly is a challenge for me to face, to be prepared for, have a contingency.

The conduct of other central banks—measures that are being taken by the US Fed—also will be in one basket as a challenge. But I suppose the institutional memory of the finance ministry, and also the RBI, have learnt quite a lot since the last taper tantrum in 2012-13. And I’m sure we will not repeat those mistakes. Then there are challenges [due to rising] fuel and metal prices. And this is not a challenge, but us being prepared. On that we are closely watching the situation. I would think [there are] enough contingencies for meeting any situation.

KANWAL: One of your biggest challenges is creating jobs in this country. How do you address the challenge of job creation? What do you think you could do or people sitting here could do to try and expedite the creation of jobs?

A: It’s a very big challenge to convey what you’re doing in the government. It’s not just the government which is going to be able to provide jobs. It’s also recognised that we need to have skills adequately imparted to our young so that they are able to find jobs out there, or also give them enough resources without having to chip in a security so that they can employ themselves.

So that is where I think many of the Prime Minister’s programmes are aiming at helping that young person to start their business by giving them credit without expecting security... where the government stands the security... and also a few interest subventions are being given. So, the spectrum of addressing job creation is across the board. The government to some extent, government-facilitated somewhat, and opportunities for self-employment, providing them connectivity to the world so they can sell their products, get them access to raw materials through transparent processes, etc. So, all this is happening. And we need to do a lot more. Item by item, this is exactly what we are taking up and doing. So that when we give PLI for instance, it’s also looking at those sectors, which are going to be labour intensive.

MUKHERJEE: A much bigger programme [than disinvestment] and a more ambitious one in terms of numbers is the asset monetisation programme. But while it’s a Rs 6 lakh crore programme, we don’t have a yearly target for it like disinvestment. Can you give us a sense of what you expect to achieve on the asset monetisation front in FY23—even a ballpark number? And what are the first two-three projects that you would like to take off the ground, just to kick that asset monetisation programme off?

A: See, asset monetisation is also going to come under the PM Gati Shakti framework. So wherever there are lands which can be monetised... and the difficulty in putting our number in terms of valuation is because they are spread across the country. Most of these lands which are up for monetisation are in different states, all of which may not obtain the kind of value that will immediately [be] imagined of a government piece of land. And DIPAM has to monetise something in somewhere east, somewhere west, and therefore it has its own difficulties. So a number is impractical for me to give at one go.

I can give piece by piece. Some of the states have come forward saying we wouldn’t mind taking it because it might help us in starting a new programme for ourselves. So, it is a very dynamic process. Engagement is happening with the states. And also, very clearly the private sector has approached saying, ‘you’ve listed this, would you tell us if we can bid for it?’ So, it’s happening from both sides. So, it will take a bit of a while for me to give you some kind of a number, but the process is on.