You don’t need a vyakhyana to understand what the Budget is trying to say: FM Nirmala Sitharaman

These are busy times for India’s Finance Minister Nirmala Sitharaman with the Russia-Ukraine conflict sending shockwaves through global financial markets, oil on the boil and controversies such as the NSE brewing domestically. BusinessLine caught up with her on Monday in Chennai to seek her views on wide-ranging issues from Budget assumptions, to the LIC IPO to her views on crypto regulation and bringing fuel under the ambit of GST

Your budget presented exactly a month ago was widely appreciated for its set of realistic, achievable projections. In light of the events of the last few days in Ukraine and the consequent impact on the global economy including rising oil prices, would your budget numbers and assumptions still hold good?

We’ve made some provisions for contingencies that may arise either due to Covid or any international crisis. We had also kept some kind of a situation in mind regarding a spurt in the price of crude. Oil prices touched $106 a barrel but is it going to continue at that level; more than that, will it continue to be available or will there be a shortfall? There are various probabilities and we have to think about them. I won’t quickly conclude that my numbers are under threat and I may have to quickly review my numbers... no, not yet. I don’t think, hopefully, there would be a need for it.

We’re also ensuring that we look at alternative sources of crude. We don’t buy any oil or natural gas at the moment from Russia. However, globally if there were to be a problem either with price or availability, we’ll have to take a look. You’re aware that even yesterday the Prime Minister held a meeting with the External Affairs Minister and the National Security Advisor. So, we’re constantly watching the developments.

Have you received any representations from industry, exporters etc. on the impact of the developments on their business, especially the decision to cut some Russian banks from the SWIFT payment system?

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We’ve not heard anything from the industry yet. We’re ourselves monitoring the situation as to what will be the impact of disconnecting Russia from SWIFT. In the Finance Ministry, we’re making our own assessment also based on inputs from embassies and looking at the possible impact on exporters and other payments that will have to be made.

One noticeable aspect this fiscal has been how you were able to stick to budgeted estimates for expenditure. This is different from the earlier instances where expenditure would run ahead of estimates even in the first few months of the fiscal. Could you tell us what has changed in your expenditure management now?

I think well before the Budget is finalised, we would sit with the various departments, which, of course, every government would do. But we made sure that the departments would project realistic figures; we would ask them about the spread of expenditure between the quarters, and so on. We then vetted these from the point of view of: are they realistic? After that, even during this intermission when I’m going around the country talking about the Budget, there are officials sitting and talking with the departments about what is the amount fixed, what amount is in the table of the House, and once the Parliament approves, that’s the amount that will come to you after appropriation.

Since last year, at least on the capital expenditure, every quarter to start with and then every month, I monitor every department’s expenditure profile. I question the delay. Particularly, after the second wave when there were no people on the ground, there was a problem reaching money to the ground for the big capex. So the monitoring and calling over the departments to understand what’s going on have made the ministries understand that this year, particularly post the pandemic, unless the expenditure keeps pace with the numbers given, the economy will suffer. So they’ve taken it on that spirit and have been at it. Otherwise, we wouldn’t be able to achieve, as of March 31, ₹5.51-lakh crore.... for an increment from ₹3.40-lakh crore to reaching ₹5.51-lakh crore wouldn’t have been possible unless we kept asking the departments about their performance. I think I’ll have to do more of this now because the increase is more than 35 per cent. 

Of the 35 per cent increase in capex, an amount of ₹1-lakh crore is to be loaned to the States for capex. How will you ensure that the States partner with you in this?

We’ve very clearly been descriptive of the way in which this money can be used. We’ve said that about 85 per cent of it will be for you to use it the way you want for a project that is in queue, for a project that has been already been started etc. About 15 per cent is based on some conditions that we’ve put. And those conditions are not to make the State suffer but for the larger objective of reform. They can be improving ease of doing business, performance can be second, bettering governance can be third, and so on. So we have conditions which are driven from that consideration.

So 15 per cent of the loan will be tied like this but that is not against the State’s interests. 85 per cent will be left for the States. In fact, I’ll even go to the extent of saying that clearing the bills of projects that are ongoing is permitted. So the States are not going to be worse off and it is definitely something that has been understood by most States. I’ve had conversations with some and they’re readying themselves so that they will send the detailed project report by March for clearance and the moment it is cleared — and I hope to do it all in April itself — money will be sanctioned.

At the central level, how you are going to ensure that higher amount of capex is spent fully? Will also the spending be frontloaded? 

I won’t have hesitation in frontloading it, last time also we did it. Frontloading principle is even now influencing our devolution. When monthly devolution has to happen on the 20th of every month, we have been giving one additional instalment. I did it twice last month. We have also moved the date of devolution to the 10th from the 20th now. These kinds of changes are happening only because we want to help States. I will not be averse to frontloading. It will also depend upon states saying we have started the project, we are moving, I would give the money in advance. 

The ₹1 lakh crore assistance for States are interest free loans where Centre will bear the cost of interest. Some of the States have alleged that this kind of arrangement is going to affect their financial autonomy. What do you have to say on this? 

What kind of financial autonomy is affected when they take JICA (Japan International Cooperation Agency) loan, that is also through the Centre? When you take external borrowing or project funded by multilateral organisation, every State wants it because they have so many such projects. Those are the funds which come through the Centre. The Centre takes it and immediately passes it on, that is also governed by the same article of the Constitution, but that’s not indebted or getting under the control of the Centre? It is a very lame argument to say States have also been considered as partners, I can’t accept it on face, I want to throw this out, so I don’t want to be indebted to the Centre. Excuse me, what is JICA or World Bank loan then? You didn’t think about it then. Politically, you want to just cry about everything which the Centre does. It is OK when you take JICA, but this (the Centre’s move to provide interest free loan) is not right, how can you say so?

The average price of the Indian basket of crude rose to $84.67/bbl in Jan 2022 from $63.4/bbl in Apr 2021. Now the expectation is that it could be an average of $100/bbl in February which in turn can push the retail inflation by 50-60 bps. Is there a plan to lower the excise duty on petrol and diesel to check the inflation?

I don’t know whether we have taken a position on this as yet. I am not suggesting we have taken a call to give it (relief through cutting the excise duty) or not to give it, but I am also conscious that if I give it now, you will immediately say that UP ke do phase main appko dar lag raha hai (you fear losing during last two phases), till now, you were very confident that you will win. Now you are not confident, so now for the sake of last two phases you gave it and then, how will you give it when model code of conduct is in place.

All kinds of interpretations will be there. That’s not to say that I am waiting for March 10, then I can give. These are considerations which are to be taken into account when so many other factors are playing out. One has to be conscious of that.

Market conditions have taken a turn for the worse recently because of the Russia-Ukraine conflict. You indicated in earlier interactions that you will be going ahead with the LIC IPO. But is there a rethink on that now? Would you consider scaling down the size of the issue or moderating the offer price to ensure a better response? 

When I last commented on this matter, the tension was building up. Now there’s a full-scale war. Therefore, I need to go back and review the situation. Ideally, I’d like to go ahead with it, because it is something we’ve planned for some time purely based on Indian considerations. But now, if global considerations warrant that I need to look at it, I wouldn’t mind looking at it again. 

Typically, private sector promoters don’t hesitate to put off their IPOs if market conditions are less than ideal. As the government sets yearly targets for disinvestment, does that impose a constraint on such decisions? 

No, I don’t think that’s a factor. Yes, when a private sector promoter takes this call, he has to only explain this to the company’s Board. But I have to explain it to the whole world! 

Does it make sense for the government to move away from yearly targets for disinvestment and to work to say, a five-year plan or vision for it? 

I would say yes and no. Yes, because as you say, the success of an IPO does depend on market conditions. In 2019, it was not ideal to go to the market. In 2020, conditions improved but we couldn’t proceed due to Covid. But I would also say no (to doing away with yearly targets) in some respects. This is not wholly driven by budgetary considerations. We don’t think on the lines of — we have committed so much for disinvestment so we need to somehow push it through. IPOs like the LIC require so much of due diligence and groundwork.

After pulling the Jagannath Rath to a point where the Lord is ready to enter the temple, it is not easy to hold back the Rath and say – hold on, you can’t enter now! So many people have been involved in pulling that Rath. After creating so much excitement and fervour around the Rath, it is difficult to suddenly stop midway. 

A key step to preparing LIC for the IPO was changing its surplus distribution policy. Until now, of all the surpluses generated by LIC, 95 per cent belonged to policyholders and 5 per cent was retained, and some of it paid to the government. It also helped that LIC didn’t have other shareholders. But now, with other shareholders coming into the equation, LIC is proposing a 90-10 split. There’s a view that policyholders will lose as a result. Have you considered this aspect while preparing for the IPO and what is your view on it? 

I can tell you that LIC’s functioning has been thoroughly analysed before preparing for this IPO. Once the IPO decision was taken, surely the policyholders have been kept in mind. So, one change we’ve really focused on is to ensure that LIC’s Board is democratised, so that the policyholder as a large stakeholder is given a place. But when the process of administration itself changes, the shares in surplus also need to be reformatted. We can’t say the policyholder is the loser when we reallocate the surplus because he will gain from higher dividends, too, as a shareholder. Whenever dividends are given out, shareholders among policyholders will benefit. 

Coming to the raging topic of the day, we see that the CBI is now moving ahead on the NSE Himalayan Yogi case and has questioned Chitra Ramkrishna and arrested Anand Subramanian. But is there political will in the government to get to the bottom of this scam and take this case to its logical conclusion? There is a belief that both Ramkrishna and Subramanian were only conduits and that this was orchestrated by a puppeteer who was outside.

First, let me clarify that CBI investigations in this case have not commenced now. They have been on since SEBI filed its report. After the whistleblower complaint, there have been multiple studies into this case. NSE did its own study, SEBI did its study, there were forensic audits. The CBI, in its own way, has picked up speed of late. I would say it is the law enforcement agencies and their efficiencies that come into play in such cases. For instance, in many of the cases which I have been aware of, I know that lookout notices do not get responses. In many instances, they don’t get even routine responses from overseas agencies. They can appear once or twice in Court and say they are awaiting responses, but the third time, the Court will rightly question them.

There are many factors that play on the speed with which such cases can be investigated. It is not the political will or lack of it, but these kinds of constraints that literally eat up time. Take Kingfisher’s case. As the government, we have followed it up so many times. We have presented ourselves in foreign courts and asked for extradition, it gets postponed once, a second time, a third time. It is escalated to a higher court. So, these processes by their own nature take time. It is not about political will.

So, the bottomline is you will take this case to its logical conclusion however long it takes?

Absolutely. One thing that clearly comes out is that public interest, shareholders interest and market participants interest in that exchange have all been given a shakeup. The questions that people have: Are regulatory controls in place, are exchange systems and processes transparent? Has the regulator been taking the right action? With all this out in the open, the government now has to set systems in order and tighten regulations. You may say – what is the government doing bolting the stable doors after the horses have escaped? But it needs to be done. With several reports on the issue, there is enough material on it. I need to answer to the government’s satisfaction if SEBI has taken adequate steps or not. 

So, do you think SEBI has taken enough steps in this case?

I am looking for an answer to that!

On GST, the revenue neutral rate average is now 11 per cent and the Group of Ministers is now looking into rate rationalisation. What kind of rationalisation is being thought of? Is a merger of the 18 per cent and 12 per cent slabs likely? How are inverted duty structures in sectors like in textiles being corrected? 

I would not know. I am waiting for the recommendations from the Group of Ministers. The questions you are asking are definitely the key ones. The RNR has come down, but not for logical reasons. So, it needs to be corrected. How we do this, we’ll have to wait to see the GoM recommendations. 

Do you think the time has come to bring at least one fuel product such as ATF or natural gas into GST to begin this exercise? 

I would like to say yes. But it is not enough for me to say it. The GST Council will need to take a call. The Council has never had either the Centre or the States push for it. The group has been looking at how situations are developing in terms of what individual sectors are going through. Unless there’s an issue that affects one particular State so badly, issues don’t get pushed by one participant. We are all equally concerned with all this. 

Do you think the 16 per cent median GST rate is good enough or should be brought down? Especially now that GST collections are also buoyant? 

I don’t know if that is the relevant debate now. I would think we need to look at how an item that was at 15.4 per cent was brought down to 11 per cent and can that be pushed up a bit. Our aim is to ensure that all States benefit from changes. 

One of the good Budget moves was to impose a 30 per cent tax on transfer of crypto assets, with a new TDS. But the crypto ecosystem immediately welcomed it and saw it as lending some king of legitimacy to cryptos as an asset. When are you likely to introduce the Cryptocurrency Bill which will provide clarity on whether they are legal or illegal? 

Consultations are definitely on. After that we will take a call on whether to regulate cryptos or not, whether to ban or not. 

Is it likely in the second half of the Budget session? 

No, it is not likely to come through in the second half. 

Have bank and general insurance privatisation announced in the last Budget been put on the back-burner? 

We have had only the Winter session and the Budget session so far. We have moved ahead with insurance. What I find unfair is that we are relentlessly asked such questions by media without taking into the account the context we are in. In the midst of the pandemic, I get asked questions about why we are not proceeding with privatisation. Now, there’s the Ukraine issue. 

This new personal tax regime which was brought in a couple of years ago, you must now have data on the extent to which people have moved to it and what kind of people have moved. Do you see a need to sweeten it to induce more people to shift? 

One pattern that’s very clear is that people who have less exemptions and the elderly are moving to it. Some people from higher income groups have moved. But middle-aged folks, those with exemptions like home loans, they have not yet moved. We are very clear that we would like individual taxpayers to move to this simplified regime with low rates and no exemptions. We can see progress on that. I also didn’t expect to have everyone to move within one year. We need to see what sweeteners will work. 

There’s also a debate on whether the Long Term Capital Gains Tax regime needs rework. What’s the thinking on this? 

Why should I rework it when it has been only 2.5-3 years since I implemented the LTCG (for equities) and I am just beginning to see revenues from it? We have started getting tax collections and will see how it works. 

So it will be status quo on both short term and long term gains? 

Yes, I can see substantial improvements in revenues this year. I have waited for two years and am finally receiving revenues. So why would we touch it? 

Your Budget this time was noticeable not just for the numbers but for the shortness of the speech. The structure of the speech was also different. Usually there are odes to farmers, irrigation, social sector in Part A before you get down to tax proposals. But this time, you dived straight into the business...

Since last year, we have consciously tried to make the Budget speech pithy and easy to read. We want the Budget document to say what it needs to say. You shouldn’t need a vyakhyana to understand what it is trying to say. We’ve not skipped any of the sections on agriculture or social sector. We have made the budget inclusive and have focused on taking everybody on board, but we have tried to make it a more crisp and readable document. 

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