We’ve to finely balance deficit and the need for stimulus: FM Nirmala Sitharaman

Raghuvir Srinivasan, Richa Mishra, Shishir Sinha | Updated on October 30, 2020 Published on October 29, 2020

The FM is confident that the consultative approach of the government will ensure everyone’s voice is heard.

Nirmala Sitharaman, Minister of Finance and Corporate Affairs, has a tough task ahead as she tries to navigate the economy to a growth path while maintaining the fiscal balance. But Sitharaman is confident that the consultative approach which is adopted by the government will ensure everyone’s voice is heard.

In this interview done by video conference, Sitharaman shared her views on a range of subjects relating to the economy. Excerpts:

Is the ongoing economic turnaround a durable one, or do you think there is a possibility that demand will slacken once the festival season ends, as a lot of people seem to be speculating?

I think even if you give an allowance for some pent-up demand, which is seen as the reason for September’s revival, after that in October, I'm seeing all around revival, each according to its own pace, but revival.

And manufacturers with whom I’m having a one-on-one conversation — which I did even during the lockdown — are not speculating on whether they should ramp up full capacity or wait till full demand comes on. They are quite happy to speak up openly about it, saying we are full capacities. We are pre-Covid capacities.

In fact, some of them even go to the extent of saying, probably, even better than earlier in the sense, at that time, just around budget, the debate was open; you all know about it — some were saying there is a slowdown, we are not able to have sufficient demand to meet up with all the capacities that we have, and so on. So compared to that, nowadays, it’s even better.

So, there are responses from various sectors of the society which made me feel that, one, the pent-up demand has, perhaps, been adequately met even between September and early October. The ramping up of capacities of the industries, which are being heard now from various segments, is very clearly indicative of their assessment to meet the sustained demand.

So, I think even after the festival season, we will be back to a good demand, demand-driven supply and impetus to the economy. On the whole, I can say it will be a sustained revival.

You said a few days ago that the next fiscal will see India returning to high growth. How much of this growth will be amplified by the base effect, as the first half of this fiscal was a washout?

Okay, to an extent it can be amplified by the base effect. But that is where I elaborated about how industry is looking at the revival. If what they say is pent-up demand coming up now, which is getting met by the September and October production, and if they are looking at increasing capacities, it is not on the back of what has not been done during the first quarter. It is more futuristic and looking at an economy which is raring to go.

So, it is not that all of us are talking about next year being fairly good based on the low base effect. We are talking about a 2021-22, where India will have opportunities, because of the various measures that all of us are taking; not just government, even industry. Businesses are now resetting themselves, looking around to catch up with newer export markets that probably kept India as a second or a third option for certain commodities.

I see a complete reshaping of both manufacturing and our export blueprints. So, where you're clearly resetting your manufacturing capacities, you're resetting your production formula, you're resetting the way in which you looked at exports, and not just entering into a market...this is what all of us have been talking about as the return of the animal spirits.

We are not going to be overwhelmed by corona. On the contrary, we see a great opportunity for India. And I'm glad that that is the feeling that I'm getting from industry — small, medium, big. Of course, that's not to deny that corona has impacted most industries in some or the other way. There's no denying that.

There is an opinion that your government is fiscally very conservative. Nothing wrong with that, except that at a time like this, we need the government to be more liberal with spending and stimulus. Are you watchful about not getting on the wrong side of rating agencies?

I'm actually surprised that this question persists in the minds of observers, analysts, journalists, and so on.

We tailored the stimulus, with careful inputs from all stakeholders, taken at various different levels at the ministries level, at the minister's level, at the Prime Minister's Office level and by the PM himself . The inputs have been taken on issues at various levels. And, all of us went to the drawing board; it is only after that that some stimulus packages were worked out.

We have made sure that the money we have put out has reached the people and made the difference that we wanted it to make.

We actually made every effort — and I'm grateful to the RBI... We actually have looked at the overall picture of the economy. And between the RBI and the government, there's been quite a lot of coordination.

I'm not suggesting for a minute that I told RBI to do this, or the RBI told me to do that. But each of us in our own areas have done it in sync. The overall benefit is there for everyone to see.

Most of your demand-side stimulus is centred around Central Government employees. What about the private sector employees who too are under stress?

That's a suggestion Raghuvir gives me. I'll take it. (laughs)

There are protests over the farm bills and some states have passed their own legislation. Will this affect its implementation?

I don't think so. Because I will immediately refer to the exhaustive interview that the Prime Minister has given today in one of the pink papers. Even there, he has addressed this issue of what exactly these farm bills are... It was not suddenly something given birth to overnight. The PM says that, in his interview, it's been recommended by ever so many committees, Parliament has had a look at it. Over the years, many State governments have recognised the fact that the Agricultural Produce Marketing Committees are probably restricting the farmers from getting a fair deal.

Now, the protests which are happening did not happen when the ordinance was passed. Many states had already, even last year, if I remember, in one of the Governor's conference as well, said that they would like to take a relook at APMC. Otherwise, in the 2019 election manifesto, you think the Congress Party would have stated that they will disband the APMC? They didn't say we want them; they said they will disband them.

So you might be putting something in your manifesto for a Lok Sabha election and have no intention of following it.

And for a party, which puts it in its manifesto in the Lok Sabha election, today, in a particular state to say sorry, were you saying misleading things in your manifesto?

It's playing up to the audience. In fact, I have said it in so many meetings, if a farmer sells in a mandi, he is not just selling his product at a particular price – he is paying about 3 per cent tax for local area development. He pays 3 per cent as mandi charge, then he pays something else for the middle men, then another surcharge.

Every question that has been asked in the process of this protest has been answered not just once, but several times. Today, they're stopping trains, which are going to the border areas; trains which bring in coal, fertiliser to the farmers themselves. So, it clearly explains that it is not keeping the farmers in their mind.…it is politics.

Punjab, Rajasthan and Chhattisgarh have passed their own laws. With three major states refusing to accept the central bills, where does it leave the reform?

They also have to very clearly understand that the Centre’s laws have not encroached into the States’ area. What we have done is clearly what is well within the Centre’s list of business as per the Constitutional list. What is in the Centre’s list is what we are dealing with and we are explaining it as to how this is going to help farmers.

If they bypass we would like them to stand up and answer to their own farmers.

There is a perception that the IBC has been diluted quite a bit. Do you agree with this view?

Well, I don't know on what grounds these views are emerging. If anything, I'm responding to the demands of the world, the industry, the businesses, sometimes even the courts. So our attempts have been based on the inputs that we are getting from business, from observers who highlight such handicaps. We are trying to respond to that. We are not doing anything to dilute that; on the contrary, we are trying to make it far more robust.

Yes, I concede one thing, that for effective implementation of the IBC, the infrastructure, which is required, whether in terms of the number of Benches, filling up the posts in the Benches, providing them with adequate resolution professionals, and so on, we need to catch up, we like to speed that up.

Where do you expect the fiscal deficit to be at the end of this fiscal? Would you be comfortable with high levels of deficit and again, do you have the choice in the matter?

The constant attempt here is to make sure that stimulus packages are given in time, given adequately to sectors which need them and so on. I'm reminded by everybody, don't worry about the fiscal deficit, keep spending.

I respect that. But when I come back to saying what kind of a headroom I have, and how much can I do, I also realise the difficulties that we face. So it's a question of balancing. That's what is to occupy my mind. I should be worried about the smart balancing of the two, deficit and the need for stimulus. It is important for the economy to receive it.

I have to keep myself open minded about it. So it's not worry in that sense, but it is more constantly making sure that we arrive at some kind of a balance so that everybody's needs are addressed. At the same time we behave like a responsible government. I'm conscious.

The markets are on a high with soaring valuations. A former prime minister once said that he doesn't lose sleep over the markets. So are you sanguine like him? Are you comfortable with the current valuations?

No, I watch the markets. Because it indicates something which is happening. I don't think it is so disconnected as people like to project it to be from the real world. Because I've heard a lot of people tell me, no, no, that's a different world altogether. Look at the way it is prospering, but the economy is suffering. I don't think that is the correct argument to face. If anything, I see a great connect even in an economy like India.

Look at the way the demat accounts have been opened during the lockdown.. Five lakh per month, new accounts, opened pre COVID now that has become 10 lakhs per month. It is double. It is surprising to me that Indian retail investors who are notorious to keep their money in fixed deposits or post office savings accounts, who wanted only security and surety, and didn't want to take any risk today are not even seeking the mutual funds, but are directly trying to get into the stock markets.

Do I not bother about this? No I do watch it.

How much of this shift towards the markets is driven by low interest rates that makes life difficult for savers?

Absolutely. So if people chose to go to open a Demat account and get into the market for better returns, yes, it could partly be because the earnings of your fixed deposits are not good enough, or your savings are not giving you a good rate of interest. But equally that is how I suppose the market evolves. If borrowers are not able to get money at an affordable rate, and you're paying 12-13-14 per cent interest, and you expect businesses to borrow and run their business. That's not going to be possible.

If globally money is available for so cheap, why should the Indian businesses be paying through the nose to get their monies to run their business? And of course, it has a bearing on those who have kept their savings account, particularly senior citizens for whom the returns are not sufficient. Because when they probably put the money and the rates were higher, now it is going down.

Yes, it will upset to the planning that they have done about the post retirement days. But to a large extent, the government gives interest subvention for senior citizen with keeping the rate of interest in mind, there are schemes through which we are trying to supplement and remove the shock effect on senior citizens.

Has Government got opinion from Attorney General on challenging the Vodafone ruling by a Singapore Court? When can we expect some decision?

One thing which is very clear whenever we take decision on this, irrespective of what decision we take, retrospective taxation is not something which we believe in. That remains firm and we are very clear that we don’t want to do anything which will be applied retrospectively. There is no change in that position. But as regards the case, we have not taken a call yet. We are definitely looking into the details of the arbitral award, its implication and the way in which the order has been passed and contents of the order. We have not made our mind yet.

Will you back up your words by amending section 9 of the Income Tax Act to remove the power to tax retrospectively?

I will see how it goes. I am clear that we won’t apply taxation in retrospective, whether I will amending the law, winding down the amendment which was done in 2012, I will have to take a call on that in the due course. But the sovereign right of the Government on taxation cannot be questioned. I am not talking about retrospective or prospective. I am clear, my party is clear, my predecessor was clear, PM is very clear. All of them have said many times that we shall not apply taxation retrospectively. But what I do with the amendment, I will have to take a call.

After the recent disagreement between some states and the centre over the compensation cess issue, there is the feeling that federalism is under strain even in a body like the GST council known for unanimous decision-making. How do you react to this?

I do not think federalism is under any kind of stress. If our understanding of federalism is there cannot be any discussion at all, on every issue, all of us we have to sit and say yes, it is not federalism. It has to be robust. A lot of discussion will have to happen, different opinions have to be placed and eventually we agree to something and we don’t agree to something. All these are part of federal decision making process. And these repetitive reminders have been given, outside and within the council, on consensus in decision making. Many a time, I am reminded of my predecessor, I feel very gratified. My predecessor was my mentor. He was someone from whom I have learned so much. So, it is nice to be each time reminded that my predecessor was for consensus in decision making. I have honoured that in each of the meetings. I have not violated anything. I have never asked for dissension. I have never asked for division. I have never asked for voting. Consensus, yes absolutely appreciable, but no consensus means no decision, that’s a bit difficult to accept. So yes, we need to have federal robustness, we need to have consensus because it gives very good aura. We will strive for it, but when we say no consensus means no decision, that is not acceptable.

Banking is very sensitive sector, what is the biggest challenge in this sector now especially in terms of reforms?

Bank employees have done hard work during the lockdown and immediately after that. If anything, I would be answering to this question beginning with big thanks to all banks particularly the public sector banks and of course equally goes to private sector because employees of all the banks have really exposed to such a difficult environment, reaching out to far flung villages, ensuring all Government schemes to be implemented in good manner and that too with speed. I can not answer any question on banking sector without beginning it with a big thanks to all of them for the way which they sat with dedication.

Today I had a meeting with newly appointed SBI Chairman Dinesh Kumar Khara. One of the questions that I asked he may or may not be directly involved into it but as a big brother among all the banks, he should be talking to IBA to sort out issues related with bank employees, their pension, family pension and pensions of those who retired long time ago, whose pension does not commensurate with the pension of equal rank. So, that is something I am putting all my energy to make sure. I am communicating with IBA. Secretary (Banking) is also working with them. I told Dinesh Khara that this is something, I am very keen, I want bank employees to be given their dues. A lot of pensioners are waiting for very long time. Yesterday I had meeting with Rajkiran Rao of IBA. I spoke to him too. We need bank employees to be attended too, particularly their families and the pension of retired employees too. Pension matter, staff welfare, these are the issues on which I am definitely concerned.

Then the question is about last year amalgamated banks. I am again looking at how the amalgamation has affected itself, how the synergy is being worked out. Of course during corona time, I could not do much. Now, I will have to sit with them and make sure everything related with amalgamation is sorted out. I am also nudging them to go to the market to raise funds. On the one hand some of the banks are going out to issue papers and getting very good result out of it, on the other side, I am also telling them to go out to shed some equity.

One other thing, which I would probably in the later part of next year, to focus would be to have some more retail participation in ownership of the banks, have public have some shares in the banks. We will have to work out modality for that. So Indian citizens, want to part of the owners of the banks, why not, the Government does already own them.

Given the situation in the capital market and banks’ inability to raise capital, is it necessary to look at more capitalisation this fiscal?

I have not closed any option.

Relations between North Block and Mint Street now appear to be smooth. Do you think having a seasoned bureaucrat at the helm of the central bank is preferable to parachuting US-trained economists into the Governor’s job?

I suppose every one plays their role when they come into a position like this. We had very good ex-bureaucrats as governors of the RBI, no doubt about that. Some, who have played extraordinarily good balancing roles, have also not been foreign trained. They must have gone abroad for some courses but they are essentially home-grown economists. But that’s not to say that others did not contribute, they probably did contribute. But one thing I can say in favour of those who had been bureaucrats once upon a time; who come to head the central bank, I think, have great deal of understanding of how governance works. What is important is the silent role that an independent organisation like the central bank can play. They are expected to stand like a huge pillar, holding something heavy on their heads.

Pillars don’t make noise, pillars don’t shift, rattling the building. Pillars stand firm. So, I think bureaucrats, who have gone there, have shown that kind of firm, steady and absolute anchoring role. To that extent, I think, I will absolutely appreciate. They can come up with fantastic solutions, today, which I think the current Governor is doing.


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Published on October 29, 2020
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