As the General Elections advance towards conclusion, Finance Minister Nirmala Sitharaman sat down with businessline for a detailed conversation about steering the economy out of the shock of Covid-19 pandemic towards a period of macroeconomic stability and growth.

She talked about how the teething troubles of the GST and IBC were ironed out and how a broad-based, consultative regulatory framework is being evolved for financial markets. She believes that the era of shackling entrepreneurship because of the misguided belief that earning profit is bad has come to an end and the government believes in all-round development and lifting everyone out of poverty. Excerpts from a detailed interview:

How do you look back at your five years as Finance Minister?

To start with, I was not alone in it. The immense support and the guidance the Prime Minister gave were like a backbone to carry on this responsibility. And it was not a regular five years. These five years would be different from probably any finance minister or prime minister in India’s independence history would have faced.

We had Covid-19 when we had to lock down the economy. Then the Galwan incident took place at the same time. After that, you had revival, and then the second wave of Covid-19. Then came wars, disruptions in the supply chains of many essential items.

These five years historically have been very-very challenging. In fact, in the future, many studies will be done on this period. Nothing I say would be adequate. But this is not to say “oh we did this, we achieved that”.

I am just underlining that when there is good and strong leadership which bases policy-making on inputs from the ground, from stakeholders, then challenges such as Covid-19 are withstood and we come out of it. I have very strong memory of all these, which mark my tenure.

What among your policy initiatives would you count as notable?

Several things are happening in continuum. No one would have imagined that during the first term of PM Modi and Jaitley ji (the late Arun Jaitley) as Finance Minister, GST was possible. For a decade before that, GST was frequently mentioned.

Finance ministers including the late Pranab Mukherjee ji and P Chidambaram could not implement GST. They could not get the States on board, give them confidence, hope and positivity. All these were achieved by Jaitley ji. He was able to convince the States and come out with a formula.

Many people at that time said 14 per cent guaranteed (return) is not sustainable. But a lot of good work was done to implement the GST. Similarly, take IBC. People said this is not going to deliver.

Every six months there was a case in Supreme Court on the issue of the legality of the code. Thankfully, the Court underlined the legal robustness of IBC. These are not small things.

But then came the problems which made GST appear unworkable. GST came with new technology and there were issues with who was actually using the technology. It is like sophisticated cars with advanced features for good roads and guided by the presumption that everybody will follow lane discipline.

But if you have a driver who is not trained and familiar with sophisticated technology, then there is a problem. In GST, the technology was adopted so that every business will key in their return on its own. It was finely refined for user satisfaction. But as usual, it went through chartered accountants who, in turn, delegated it to their employed staff.

So everybody would file returns on the last day. The problem in initial days was that the system was geared in anticipation of people filing returns in trickles. It was a good robust system but it could not take the load of every assessee coming on the last day or during the last couple of hours.

There is nothing wrong in this. People can file whenever they want to. But we were faced with the challenge of updating the system to the extent that it could take ten times more load. It went through phases when people forgot that it was bringing convenience and thought that compliance was burdensome.

We had to spend a lot of time correcting it, making it appealing, make people give their inputs on their own.

Unfortunately, the teething troubles of GST and IBC coincided with the beginning of the second term of PM Modi in 2019. The impression was that everything is bad. There were a number of meetings during the Covid-19 lockdown when the States wanted to be sure that they will get compensation, even from the borrowed amount.

We were trying to resolve it in a series of meetings where everybody got a chance to share their opinion. Still the impression was there was no consensus on GST. One should understand that consensus cannot be evolved in minutes. It was the same trouble when we brought faceless assessment under direct taxes.

People felt the need for a human interface and imagined that our officers were reluctant to do it. Conversely, some people started wondering about their relevance when the machine is doing everything.

There had to be lot of dialogue, there had to be lot of discussion on all these seminal reforms whether it was faceless assessment, GST or IBC.

An immense amount work has gone into rolling out each of these reforms but I think they are very-very far-reaching. They will influence taxation in the next 25-30 years.

Next big issue in GST is rate rationalisation. What is the road ahead?

It has to happen sometime. It has not happened so far because of certain changes in the Group of Ministers. There were elections in different States which meant that ministers who were part of the GoM were busy in campaign.

And all the time, we were having to start all over again. Then you had Lok Sabha elections. As soon as the new government is formed, this will be taken up.

What can be expected as part of  GST  reforms apart from rate rationalisation?

One important issue would be better and simpler form for registration. We have done pilot work for improvised KYC  in three States/ UTs  – Gujarat, Assam and  Puducherry  - and I want the same to be applicable in all the States and  UTs. . This pilot aims to ensure that shell companies do not get registered and get way with refund through fraudulent means. These entities can be curbed at the initial stage. I am hopeful that the new system would be easy for  assessees.

Can we expect direct taxes reforms? Income Tax Act was enacted in 1961 and has lost its originality with so many amendments?

Faceless assessment is one major reform. Without this, there is no other way of  assessees  getting benefit of a simpler tax regime. We got the faceless assessment going without bringing any code. There are number of steps being  taken.The  aim continues to be that we have to simplify both direct and indirect taxes.

With the inclusion of Indian bonds in global indices, there is expectation that dollar inflows will surge. What measures are needed to check sudden inflows from disrupting financial stability?

I do not think it is going to make life difficult, but a general oversight would definitely help. You want to be sure that fluctuations do not hurt you badly. But I don’t think it will be in the nature of being restrictive.

We decided to open up only after a lot of discussion and ground work. Discussions had been going on especially with the RBI for a year before I entered the Ministry. It is not as if we opened the gates without knowing what’s coming along with funds. I am not particularly worried about this.

Your government has been against the crypto currency as it believes that it is not a stable asset. RBI is on the same page. SEBI is believed to have represented to the panel on crypto regulation that it should have multiple regulators. What is the situation?

Even before G20 and since 2020, we had discussions about it in the Finance Ministry. RBI is also having its own view on it. We are very clear that there should be global understanding on how to regulate crypto.

During G20 under India’s Presidency, we spoke about it. We brought IMF and FSB. Well-written papers were submitted. A lot of discussion took place. I would like to go through the route of global understanding when everybody is on the same page.

Bringing a regulation just within one country without a global understanding on a technology that does not brook any borders is not going to help.

On crypto currency, no single country would succeed even if intends to.

Is there some confusion among regulators where one is against crypto while the other talks about regulation…

No, these are opinions, no harm in that. We have not yet reached a stage where we are saying yes this is what we want to do. At that stage, if there are differences among regulators then that would be a matter of concern. We are nowhere near that situation.

I would like to take you to one of your budget announcements about privatisation of two public sector banks and one public sector insurance company. Are these on the backburner?

These are Cabinet decisions. No one has the authority to do the things differently from what the Cabinet has told us. We will have to do it. It depends on the timing. When I want to disinvest in something, I should make sure that valuation does not suffer as a responsible government.

Is the government hand-holding private sector with higher capex allocation?

These two are unrelated issues. Capex got a big push when Covid-19 hit. The aim was to get the economy out of crisis and sustain the push on capex. We were not expecting the private sector to put money even though in 2019, we announced reduction in corporate tax.

It would not have been fair for any government to expect that the private sector would do it during the pandemic. Second, we had to put the money to revive the economy and for that, the best-tested formula is one which gives better returns, better multiplier.

According to an NIPFP study, multiplier effect on account of capital expenditure is 4.8 for every rupee spent. So, there was no option of going to revenue expenditure, which means putting money in the hands of people which was basically a Congress formula.

We had to have a multiplier. And not just for that year because 4.8 would have been achieved only after couple of years. Had we been gone for revenue expenditure, the multiplier would have been less than a rupee. It was a conscious decision and not related to the private sector at that stage.

In order to revive, the government had to spend money. There was a lot of absorption and it had the desired effect on the economy.

From the next year, we allocated a portion of capital expenditure to the states as 50-years interest free loan. We got good results, so the same pattern was followed year after year.

What do you have to say about the criticism on debt-to-GDP ratio?

Too much anxiety has been created by the opposition on this issue. There is nothing to worry about India’s external debt. Government’s debt is far lesser than the GDP number. Economies of comparable size have far higher debt than their GDP.

Some of them have two-three times higher while for us, it is lesser than actually what it is. If our GDP is 100, the debt is 80 and it is coming down. Despite the borrowings that happened during the  Covid -19 period, it still remains at a reasonable level.

Draft guidelines by the RBI on infrastructure financing has evoked strong reaction. What is the government’s stand on this?

Actually, National Bank for Financing Infrastructure and Development (NaBFID) was brought on board for long term financing and that too with deep pockets. We were very clear that public sector banks or scheduled commercial banks should not lend for long term from the money borrowed for short term and get into asset-liability mismatch situation.

NaBFID is doing fine. We are strongly of the view that we should take that route for funding infrastructure. It is not just funding infrastructure but also enabling development finance. We don’t expect banks to any longer do anything other than their typical core banking job. They should lend money, make money out of that and keep lending.

Use resources you are getting through CASA (Current Account-Saving Account) effectively, so that you better service CASA and especially from the eastern states. There deposits are high but lending is less. We are very clear that banks should focus on core banking activity and not go for high-risk development and infrastructure lending.

Also, today you have NIIF which is attracting a lot of sovereign funds and they are using the fund route even to fund instruments such as REITS and InvITs, which are very successful.

Are you saying that banks should restrict themselves to retail lending rather than project lending?

In the long run, if they take a clear route, that’s what they should be doing. It cannot happen immediately. But eventually, they may have to reset their business which is less on long term risk-ridden infrastructure and more on core banking.

If the RBI’s regulation results in banks moving away from project lending to retail lending, will you be happy?

RBI or any regulator should have consultations even at a draft regulation stage, guidelines or policy-making stage. I am happy they are doing that. Even if they are preparing guidance documents, they should have consultations with stakeholders at the draft stage and then that draft can be circulated for wider consultations.

Only then should the draft be finalised. Even post finalisation – and this I have explained to both RBI and SEBI – if stakeholders find some glitches or if they find some friction point, the regulators should be open minded and they should come back to drawing board again. ‘

This is what I call a ‘soft touch’ approach which will make regulations, guidelines or policy more effective.

Is it right then to assume that you are OK with the RBI guidelines?

… As long as this process is respected. I am not commenting on a specific policy. I would want them to follow the process. I want them to be sure that eventually, banks should focus on their core business activities. If the banks have been guided by the regulator in that way, it will be good for the economy.

There has been a lot of debate on redistribution. Your government has a certain philosophy. Do you think the way you have done redistribution has helped lift people and reduce inequality?

Not just me but the party is ideologically opposed to the other approach. We have seen India go through that. We have seen 90 per cent tax on our earned incomes and that was during Mrs Gandhi’s (Indira Gandhi) time.

We have seen taxation system being tailored to that approach. We have seen how because of the regulatory system, the red tape that prevailed and also this whole Inspector Raj. Production, productivity and efficiency suffered and we lived through long periods of shortages.

At that time, it was a virtue to not allow people to become rich because that meant that they have earned profit and profit was a dirty word.

From Jan Sangh days, the BJP and the now current dispensation, we all believe it is important to empower the poor and make sure that they have access to opportunities, give them the ability and fulfil their aspiration to become better. In the last ten years, a lot of work has happened despite Covid-19.

This is not us saying but even the World Bank in its report has said that 25 crore Indians have been lifted out of extreme poverty. This empowerment approach is working in India just as it has worked elsewhere in the world. It is possible to get people out of poverty.

The approach earlier, in the old India, the socialist India, was to make the rich poor. I am very strongly of the opinion that nobody has the right to curb entrepreneurship, or punish entrepreneurship only because you want to make the poor better off.

We are entering the last leg of the election. How do you assess your party’s position in the South? Andhra Pradesh recorded 81 per cent polling, what do you read from this number?

When it is over about 60-70 per cent, it is very difficult to conclude which way it has gone. Whether it is Andhra Pradesh or Tamil Nadu, whether it is Kerala or Karnataka, there is a clear buzz about PM Modi having delivered on his promises. This buzz is not just on Ram Mandir but very clearly on how the poorer sections have received what was promised whether it is Ujjwala, houses, water, electricity and concrete physical assets being created in terms of infrastructure development, ports, hospitals.

People are able to see concrete development and they are able to identify that with PM Modi. Therefore, in the South, we have done well as per our expectations. I will not be able to give you an exact number. But there is a buzz and when you talk to people, you are able to see that there is a lot of identification of PM Modi with delivering governance.

This election is being perceived as tepid, to use the Hindi word Thanda. Unlike in 2014 and 2019 when there was a wave and excitement for different reasons, it seems there is no particular theme that is running through the campaign...

I don’t see it that way. It is certainly the narrative which the Opposition wants to propagate – that there is no theme, that every day the topic keeps changing. But the Opposition is failing to recognise the ground reality. People are not going by narratives. They are going by who has actually delivered, who is actually giving them all that was promised.

The Opposition knows that they cannot take on Modi on the achievements of last ten years. So the best thing is to adopt the cheapest way and throw an allegation every day. In 2019, they kept saying ‘Modi is a liar, he is a chor’.

I am sure you will recall their 2019 slogan — ‘chowikadar chor hai’. They knew that in the first five years of this government, there was lot of delivery on the ground. National security and the way it was so severely compromised during the UPA’s tenure that you couldn’t get Pakistan to act on the perpetrators of Mumbai was an issue.

They couldn’t protect our borders, they could not even lay roads in the border areas so they started calling him a ‘chor’ thinking that people might be convinced that there is big scandal in Rafale and so on.

The Congress has learnt no lessons despite having to go the Supreme Court and apologise for it and has adopted the same method of levelling allegations thinking that we will have to keep defending it rather than talk about PM Modi’s achievements.

They have miscalculated the people’s trust on Modi’s achievements and delivery of promises on the ground.

In the first two phases, the voting percentages were very low but picked up in subsequent phases. Do you think people are getting bored and it is not good for the ruling party? That your supporters are not coming out to vote...

No, wait a minute. I am always confused when you say ruling parties. Many States are being ruled by regional parties. They have their MPs. When the voter turnout is low, would they admit that their MPs have not been impressive in Parliament? It works both ways.

In a State where regional parties have the highest number of MPs, low voter turnout can also be a disapproval for their sitting MPs. Too much is being read into low voter turnout in the first two phases. It was not that bad after all; it was not 40 per cent or 50 per cent. It still had crossed 60 per cent. It may not have touched 80 per cent, but I think we are over-reading this situation.

What about Ram temple issue? It was believed that the inauguration would give you the Hindi belt on a platter. But it seems that tailwinds you got from the Ram temple have weakened...

For us, it was never an election issue. It was a civilisational issue. It went through the courts. We wanted the courts to clear it. We said we will make a ‘bhavya mandir’ and that is what we have done. And the entire country connected with the ‘Pran Pratishtha’. Ram Mandir really fulfilled a civilisational aspiration. Look at the number of the people who are going to Ayodhya.

Everyday anything between 1.25-1.50 lakh people are visiting Ram Mandir and they are going from all over the country. And obviously, people who go there and get spiritual satisfaction would know that after a long struggle, we have built the temple.

Is Karnataka a lost case for BJP ?

That is not the feedback from our side. It is the feedback which Congress would want to put out knowing very well that there is serious anti-incumbency against the Karnataka government.

The level of dissatisfaction against the State government is very high. That is why they are propagating this myth. Karnataka has gone as per our expectations.

What do you have to say about the Swati Maliwal issue? Is it a poll issue for the BJP in Delhi?

No, I look at it as an issue which has drowned the Chief Minister. He may deny it. He may behave as though it is not impacting him. But it is like a whirlpool, it is sucking him in and the longer he is going to avoid talking about it, he is getting mired in it. To those who say we did not talk about Manipur or Prajwal Revanna, I say it is completely untrue.

Amit Shah, the Home Minister, spoke about Manipur in Parliament. PM spoke about Manipur. Nobody avoided talking about Manipur. On Revanna, although JDS is our partner, both the Home Minister and PM have said thorough inquiry should take place and strict action should be taken.

In the earlier system, it was a virtue to not allow people to become rich because that meant that they have earned profit and profit was a dirty word… nobody has the right to curb entrepreneurship, or punish entrepreneurship only because you want to make the poor better off.Nirmala Sitharaman,Finance Minister

So where is it that we have not spoken about Revanna or Manipur? It is very easy to say you are not talking about Manipur or about Revanna or Brij Bhushan Sharan Singh. The party has not given him ticket and the matter is in the court. After all this said, I will say that the complete and total responsibility on the Swati Maliwal issue is on the Chief Minister.

This happened in his house, he was present in the house and the person accused of misbehaving with a sitting Rajya Sabha woman MP is his own PA. The CM is singularly, wholly, completely responsible for this. Should he not be part of this inquiry, should he not be answering it?

Finally, whoever comes as new FM, what do you think would be the three most important items on the agenda?

It also will depend on what are the kind of things we want to look at in the first 100 days, because we are working on that agenda. The broad outline of how the country should move is already established. About how to make India a developed country by 2047, how to achieve the third largest economy status within a year or two for which this will be a critical year.