Budget 2021

‘Every number in this budget has been vetted for being achievable’

Fresh from presenting a Budget that represents a clean break from past policies, Union Finance Minister Nirmala Sitharaman was in Chennai last weekend to hear feedback from industrialists and common citizens. “This is a Budget that was put through the wringer to ensure that every number was credible and achievable and did not reflect over-ambition,” she said, in an hour-long interaction with BusinessLine. The Minister explained why her Government thinks it’s time to recognise wealth creators, the thinking behind bank privatisation and the new DFI, while defending the proposals on cess and EPF taxation. Edited excerpts:

Recently, the PM made a significant speech in Parliament where he said that wealth creators should not be run down and that babus should not be running businesses. Your Budget also had many industry-friendly features. Does this indicate a fundamental shift in governance where the BJP government is finally coming into its own in terms of a pro-wealth creators, pro-business approach?

A fundamental shift in governance was already underway between 2014 and 2019 and we are only continuing with it now. Governance is now entirely focused on last-mile delivery, connectivity, simplifying regulatory and administrative compliance and keeping the government at arm’s length from institutions that had gotten too close. I think this kind of emphasis on governance had already started full force right from 2014.

As far as the ideology is concerned, I don’t think we were far removed from the ideological core of the party, whether in Atal Behari Vajpayee’s time or even earlier. Between 2014 and 2019, there were definitely difficulties because of the party’s numbers in the Upper House. Now, the numbers in both houses are much improved, especially the Upper House. This smoothens the passage for reforms that we plan to undertake.

Reforms are not just an activity derived from one’s ideological commitments. Reforms are a necessity because this country had gone too far in reiterating a socialist and what I would call an imported ‘Jugaad’ ideology. By Jugaad, I mean the ideology was made from tweaking imported ideas and constantly adding to them in the hope that they would somehow fit the country. But this approach had badly skewed the system because it brought in regulatory rigidity, allowed discretionary decision-making and encouraged subjective choices that were not based on rules. This so-called welfare state socialism had degenerated into a very rigid and arbitrary regime towards businesses. I believe this Budget stands out distinctly because it addresses many of those rigidities, which had come to be regarded as sacred cows, if I may call them that.

There also needs to be recognition that socialism is not the only ideology that has a copyright on welfare. When the economy does not do well and wealth isn’t generated, then social good suffers and so does the welfare state. So, we have now called the bluff that wealth creation is in conflict with welfare. We are trying to reinforce that lawfully earning money is not wrong. A tax regime that is not oppressive or adversarial can generate sufficient revenues to fund welfare.

The Budget stance indicates that there’s nothing very sacrosanct about the fiscal deficit target of 3 per cent. If not the fiscal deficit, what other debt indicator are you going to target?

This year, I don’t have the luxury of minding ratios like debt-to-GDP too much. But I do have the comfort that interest rates are at low levels. Here, I must appreciate the role that RBI has played. We have had a running engagement with RBI that has helped bond yields remain at acceptable levels. That is why, even the GST compensation issue, we decided to arrange for back-to-back loans to the States, without the States having to go to the markets which would have led to their yields shooting up. Compensation is after all about giving States parity in treatment. If we are providing compensation, we felt that States must access funds at yields available to the Centre.

As to what we are going to target in terms of a debt indicator, this year we would rather not be focusing too much on that. We would like to concentrate on executing everything that has been promised in the Budget in a timely manner so that the revival gathers pace.

But government bond auctions are lately devolving on primary dealers and yields have been rising. Do you have a number on the yield you are comfortable with?

No, I don’t think we are spending much time on detailing that. We will take it as it comes. The RBI is very communicative with us on this. If I we say this is the level [of yield] we are comfortable with, that is a suggestion to the market which I would not at all like to give.

On strategic sales, going by the BPCL and Air India cases, considerable homework seems to have been done this time around before inviting bids. Why has there been a delay in the sales going through? Is it a case of too few bidders expressing interest?

We have had a reasonable number of bidders in both cases. But then since the 2019 elections, there have been ground realities in terms of the state of the economy and the global economy slowing down. There are also checks and balances in the system in terms of bureaucrats cautioning about getting the process and returns right. We want to tick every box before we stand up in Parliament to defend these sales. This has resulted in the delayed timelines. Even within families if you want to sell a piece of ancestral property, every family member has suggestions you need to listen to, and there’s a lot of sentiment around the process.

Is your disinvestment projection of ₹1.75 lakh crore for FY22 too conservative?

We have been very realistic about estimating all the numbers in this Budget – both in terms of perception and what we can realistically achieve. On disinvestment numbers, till the last moment, we were keeping our pencil and erasers ready to make changes if need be! We didn’t want even one number in this year’s Budget to appear as if we had been a little careless or over-optimistic. Every number has been repeatedly vetted for being achievable. This is a budget that has been put through the wringer repeatedly to get it closer to what is achievable. So yes, it can appear to be too cautious. But I would rather be cautious than stand up and say later that I went wrong.

The vehicle scrappage policy announcement in the Budget came a few days after a Green Tax on older vehicles. What kind of outgo do you expect towards compensating manufacturers? Are you working out a subsidy sharing arrangement with States?

The finer details of the scheme have not been thrashed out yet. Yes, we have a gone through the broad implementation plan. The Government’s approach in such matters is quite holistic. We need to consider the environmental aspects such as the pollution arising from handling this scrap. Unlike ship-breaking which is concentrated in a region, vehicle scrappage will need to be a very decentralised activity. What we need on the ground is widespread infrastructure for scrapping old vehicles, at the district level. Details like sharing of outlays will be looked at later. Fleshing out the details will take a few weeks to a month.

There are already a number of cesses levied such as on petroleum products. This Budget has added a new Agricultural Infrastructure Development Cess. The feeling among States is that cesses deprive them of their rightful share in revenues. Is it fair to go on introducing new cesses that don’t devolve on States?

When discussing this particular measure, we spent a lot of time working on the idea of cess itself. Yes, it goes to the Consolidated Fund and doesn’t go to the States. When we thought of this, our intent was to have a fund for improving agri infrastructure in the States. We also wanted to bring down customs duties on necessary imports for downstream and export industries. If we had simply carved out money from customs duty itself, the funds would go into the Consolidated Fund of India and then you would have to create a new head of expenditure or go to Parliament for a new scheme. So we thought that given that customs duty is being reduced, a part of it could be used to improve agricultural infrastructure without going through those time-consuming steps. So this cess, after going to the Consolidated Fund, would be given to States for improving agri infrastructure.

What about the philosophical question on whether cesses are a desirable form of taxation?

I do agree that cesses do reduce the share of tax revenues that go to the States. There is no disputing that.

This Budget must have been the first one to have used the term ‘privatisation’ with respect to public sector banks. It has said two candidates will be initially identified. Will you be picking the strong, large PSBs that have emerged out of the mergers of the last couple of years or the weaker, smaller ones that need recapitalisation?

I don’t think we are proceeding on those lines at all. We’ve not made any decisions on whether to sell profit-making banks, smaller banks or big ones. We want all banks to become professionally run and to come out of RBI’s Prompt Corrective Action framework. We want them to stand up and say that we will be focusing on professionalism and good performance. In the last six years, I think we have shown that we don’t interfere in public sector banks’ day-to-day decision-making. The drive is to help them build on their strengths.

India in the next few years should have strong banks that are able to meet the needs of the economy. With the launch of Development Financial Institutions (DFIs) from the Government and the private sector, we are hoping that long term infrastructure funding will be taken care of by these institutions. Banks must focus on the primary business of lending for commercial purposes, rather than getting choked by sourcing short-term deposits and lending to long-term projects. There should be a marked difference between the portfolios of DFIs and commercial banks. The DFI idea will be implemented as soon as possible, so that the demand for project funding in the economy can be met.

Over the years, there have been quite a few tweaks to the EPF. What is the long-term plan for the EPF? Will it be only for those earning up to ₹ 15,000 (basic and DA) per month?

No, we have taken a call not to discourage those earning more than ₹15,000 per monthnfrom being part of EPF. But if there are instances of people putting ₹1 crore a month who get EEE taxation benefit and also get an assured return, I want to make sure that without hurting those who are in the EPF, I recognise those who are getting the double benefit. How justified is this? There can always be a discussion on the ₹2.5 lakh limit. I can go back and review it. But it is a matter of principle. We are only touching those who are putting far more than what an average Indian’s earnings is per month - and they’re about 1 per cent of the total.


I know your question is touching on a larger issue of what we are planning for the EPF itself. Do we want to keep it going or do you want to blend it into NPS? We don’t intend doing this. We want to continue with the EPF. We understand that there is a certain comfort with people, particularly middle income earners when they are assured of a return.

One expectation before this Budget was on retrospective taxation – that you will take out this offensive provision inserted in 2012. But that has not happened. Is it a signal that you are sending out?

Our position has not changed. We don’t subscribe to any retrospective application of any tax. We have also very clearly said that the amendment notwithstanding, we shall never apply this ever. But with the arbitration verdicts also coming, some of the wordings of the operative part of the arbitration also indicate that there is a questioning of the sovereign right of India to tax. There is a subtlety here. But a very powerful subtlety. Can the right of a sovereign nation to tax, somewhere get questioned even in an arbitration which probably says ‘No, this step is wrong’ – which is what our Supreme Court has also said much before that. This is what very many taxation experts looking at the outcome of the arbitration are saying. Is there a question on India’s sovereign right? Even if implied, it has to be stood up to. We are taking some time to understand this aspect. And that also justifies why we have gone for an appeal in Vodafone. On Cairn, the top Cairn leadership have met with the finance secretary. We have to now see what is it that they have come with as an offer and address these issues. But the larger issue of why we have not rushed to remove that amendment of 2012, the larger issue for us going on an appeal on Vodafone, is governed by this fact that India’s sovereign right to tax, even by implication or in a circuitous fashion, cannot be questioned.

In personal income tax, according to experts, not too many assessees have opted for the new regime with a lower tax rate but without exemptions. What’s the reason?

No, these kind of changes will take time to be acceptable. Why do I say this? The old regime which exists now has not come up in one year. It has evolved over several years. The entire structure has become such that it has a lifelong implication on an assessee, less than lifelong for someone else and so on. Everyone who has taken an option for an exemption and now benefits from it, will probably like to wait till he exhausts that and only then he may move to a simpler regime with a better rate. For instance, someone one who has taken a home loan and is paying EMIs. A citizen who is closer to retirement would probably no longer need that exemption as he has cleared his home loan. He can opt for the new regime. So I don’t for a moment expect bulk movement from that to the newer system. It has to come in trickles. And, gradually, the new regime has to be more and more attractive so that the transition is smoother. We don’t want to upset any tax payer’s calculations. We want stability. So that has to run its course so that, nearer the course ending, may be this would be very attractive.

The Budget had touched upon setting up a common investor grievance redressal mechanism. But the modus operandi is not out yet. Is this something that will supersede all the existing grievance redressal bodies ?

Ideally, we should be providing a regime that has fewer major grievances. Minor ones we want to handle through technology. The major ones - we should be able to correct the system such that they don’t become too much to handle and too frequent. For this, we eventually want to have some way where most of the regulators come on board to have a single window kind of mechanism. You should be able to touch one point where decisions will have to be made, regulators are on board and therefore your grievance will get addressed there itself, rather than running from one person to another. So yes, in the long run, this grievance redressal has to be simplified. Else, that itself is a grievance.

There was also a proposal in the budget to rationalise the SEBI Act, Government Securities Act, Depositories Act and bring them all under an Indian Securities Code. Is it linked to the move to bring a common grievance redressal also?

It also has implications for it. But even otherwise, given the sophistication with which the markets are now operating, the Acts are not nimble enough to handle it. And the multiplicity of Acts that have to be brought in for each one of them - There is a voluminous reference manual. So we want to bring it all down as much as possible – like the Labour Codes which saw 44 different laws brought down to one. It took its own time. So that’s what we want to do.

Is the Income tax department’s move towards faceless assessment, appeals, etc. being rushed through without seeing the results and the issues which tax payers probably have ?

If taxpayers have a problem with it, am certainly willing to listen and hear and alter anything that has to be changed. I don’t think we are rushing in any case. We did a pilot of a certain number of tax payers and then we had the confidence that it can be scaled up. Therefore we scaled up and therefore also we said, appeals too can come into this fold. But if it is only tax payers’ problem, I am willing to hear it. If there is a hesitation from the system itself, I will only talk to them but will not be able to give them more time. Officials have been repeatedly telling me and I have the confidence and that they are comfortable doing it. A lot of change in the deployment of the field forces has happened and therefore, the system is quite ready to take it on. But if tax assessees have a problem, I will certainly be ready to hear it, to change it. But this government strongly has a commitment that it is only technology which is going to give comfort to the assessee. Personalised, one-on-one discretion based, sort of corruption inducing approach will be completely out the moment you bring in technology and for that very reason we are committed to this.

Why are you hesitant to drop duties on petrol and diesel at the Centre? You take away ₹30-32 per litre on petrol. The states also have a huge share – they take ₹19-20 per litre.

I would like to say the usual platitudes - that it is not the government, it is oil market companies, it is global prices going up since November, etc. But if the one objective we want to accomplish is that the consumer should pay less, then just the centre withdrawing is not going to help. I say this with due concern because everyone wants revenue. It’s not to look down upon states who want to have quick ways in which they want to raise revenues. The space that I vacate, there is no guarantee that it will not get filled up. So if the end result is consumer should pay less, both centre and states should sit together and see how best to handle this. Taking into GST can be an option. That will certainly bring it to one rate all over the country. The GST council can deliberate and take a position on it, but then, the fact is, it is both the centre and states even then. And the provision for the petroleum products is already made in the GST – it is zero rate. It is not going to require much more legislative exercise. So, we will have to see how it goes. I really don’t think I can speak with a good level of clarity on how the oil marketing companies price and also how they speak of under and over recoveries. That’s an area which the petroleum ministry will be able to comment on.

About a month before the budget you said that this would be a once-in-a-100 year budget. Were you nervous when you were formulating the budget that you should live up to these expectations? And, were you nervous immediately after the speech was done, as to what would be the reaction?

I wasn’t nervous when we were preparing it, because, whatever we have, we have to work within the available framework only. I wasn’t nervous at all post the budget. After the cabinet had cleared it that morning at 10 -10 30 am and between then and 11 am when the Budget has to be presented, those 30 minutes were very difficult. And, because of the restrictions there were no visitors. With due permission, I went to my uncle –who is like my father - he was seated in one of the guest rooms. I quickly took his blessings, saying ‘keep me in your prayers’. He was shocked to hear that. But I just said ‘Keep me in your prayers. Am just feeling queasy in my stomach’. That’s it.

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Published on February 21, 2021
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