Infrastructure investment to set off a virtuous cycle, trigger multiplier effect: Nirmala Sitharaman

In the mind of the Prime Minister there was never this doubt that this budget drawing from certain policy prescriptions that we had laid out in the last – for an economy, which is coming out of the pandemic and showing very good positive revival signs, we should unhesitatingly give more help and stimulus that is required so that the revival is sustainable and strong.

Therefore, there was no doubt in our minds from the very initial stages of working on this budget that public investment in infrastructure, that is, the capital expenditure for the government should be kept up.

Even last year, we had given a good solid increase in the capital expenditure of the government between 2020-2021 and 2021-2022. Now, this year, therefore, we wanted to continue that momentum and also take as much as it is required to help the states to move forward with their infrastructure spending.

So, from the beginning, I think, the clarity in the mind of the Prime Minister was growth – growth has to be ensured, growth has to be sustained and we have to lead it because only by public expenditure on infrastructure building we believe that the virtuous cycle will happen and also there will be in a crowding in effect for the private investments to come in.

So, there was never a doubt other than this.

Q) The elections were not weighing on your mind?

No. We thought that if the economy does well and if growth has attained that kind of a momentum, the multiplier effect, because when you spend on infrastructure and when you do capital expenditure, for every rupee that you spend, approximately, 2.95 is what you would get as a multiplier as opposed to when you are giving money through revenue expenditure, you get less than one rupee for every rupee that you spend, something in the range of 0.95 or so.

Nirmala Sitharaman presented the Union Budget for 2022-23 on February 1. (Image: PTI)

Therefore, we thought it was important to have a maximum multiplier effect and that would have enough ripples in the economy whereby the well-being of the citizens will be attended to.

So, if that is happening, why would any other consideration come in even with the elections on. Elections come and go but the economy particularly at this juncture requires that strong support.

Q) If you look at India, it is one of the bright spots in the global economy. Today, our economy is expected to grow at 8-8.5% next year. The same number for China is 4.8%, Brazil 1.6%, Indonesia 5.6%. Do you think that an 8%-plus kind of growth is sustainable over the next few years?

If things go the way they are going now, gradually, all sectors come up and are on their toes. Why do I say this? I recognise that even now the hospitality and contact intensive sectors are still requiring support and that has been provided for in the budget.

So, our understanding is if even those sectors revive as much as they would like to with support from government and the systems – banking and others – yes, that is achievable.

Q) This time, one big headline of your budget has been the big capex boost. You also referred to it just a little while ago, allocation of Rs 7.5 lakh crore, up 35% from last year. Do you think that this will fire up private investments, if that happens, it could change the face of the economy, are you confident of that?

I am hopeful of that because I am looking at it from slightly different stages and also environments. In 2019, for instance, when we brought in the reduction in the corporate tax and brought it down to such level, which was globally, probably, the lowest or probably one of the few lowest rates. That year, we were sort of reminded saying your corporate tax revenues have gone down, you saw it is not going to help and so on, but we had this great faith.

The Prime Minister’s interaction with the industry also was very reassuring because people felt that that was a very positive constructive step, and what did it do? Actually, many of the industries, many of the big companies, who actually generate wealth and create jobs,  you saw them, as per media reports, leveraging it, probably cleaning up their debts and so on, but that providentially has come off help during the pandemic time, that today, you find many of them moving into areas of expanding their capacity, mergers are happening, acquisitions are happening, you see that companies are out there to be able to expand their capacities looking at the buoyant Indian market. Also, exports are growing, which means export potential is also there for private sector investments, to see the opportunity available and expansion and also newer capacities are definitely going to come in.

The last point on that is, you also see in spite of all the naysayers FDI into this country, in spite of all the speculation about other central banking authorities taking different call whether it is the Fed or anywhere else, FDI is still coming into this country in a big way, they are not FPIs.

Q) If you look at the actual spending from capex allocation so far in the first eight months of this year, it is at 50% of the allocation of Rs 5.5 lakh crore. Now, you have increased that to Rs 7.5 lakh crore next year. How confident are you that the spending will keep pace with the allocation?

First of all, this, yes, we have made an allocation till December, you are right 65% to 68% has been utilised by the departments for spending on public infrastructure. But after the budget was announced, let us not forget that we had the second wave in April. Although we came out of it, thank God for that, although we came out of it quickly, it also staggered that first quarter's expenditure into the second and then into the third and so on. So reaching 68%, in spite of the first quarter April going in, and a bit of May going in because of the second wave and the psychological imprint it left on people, for us to catch up with the intended public expenditure did have a lag effect. So, I would think that shouldn't be the case, this coming year. Now that Omicron also is showing signs of withdrawing, I don't want to say it has gone away, we will have to be careful, but still.

Q) You have addressed the supply side of the issue. How do we really revive demand? So you have got your large capital expenditure programme chalked out, could you have considered cutting taxes to put more money into the hands of the consumer?

There are ways in which demand creation can happen. In our country, where the taxpayers’ number, and also the taxpayers’ profile is seen, then you also realise that it is possible to provide stability in tax regime, predictability in tax regime and that I would think is a very important factor. At a time like this, you don't want to bring in elements of uncertainty. As a result of which, some sections feeling alright, I have got some relief, but some other sections feeling that hadn’t come to us and probably this would have a bearing on many others.

Any exemption given is also just not for those who desperately need it, but by law would be applicable for others who probably don’t need it so much. But because the system and the framing is such that it will benefit everybody. So, that is one point.

Second, if you are looking at tax stability, if you are looking at predictability, and making sure that you have not increased anybody’s burden, you are at least making sure that people who have planned their monies can be sure that that is remaining unaffected. So, we in this budget, placed a lot of emphasis on stability and predictability.

I am no cricket watcher, but I would definitely say this, from my outsider’s understanding, particularly, in a T20 match, it will be the opening batsman can have the liberty to smash hit and do a lot of good sort of risk taking batting and probably the end overs the fellows would have to catch up doing as much as they can because they will have to meet the target and the gap which has to be filled. But there is a sweat, toil happening, which is in between the two. You can probably take that situation.

Q) I think predictability, stability, I would even say continuity, I think that has been the hallmark of your last three budget as I have closely seen it. Let me come to something that has been a niggling issue, a global headache in some senses – inflation. Look at the US, for instance, our consumer inflation has obviously stayed in the 4% to 6% range. But if that were to really go up in the coming years, do you think that could throw some kind of a spanner in the works?

I think globally all economies are worried about inflation and that is not to say – okay so what? Does it affect your planning or not? It does affect my planning. I am only trying to say this inflation, particularly, because of certain global factors of metals being very highly priced, energy – at least the fossil fuel being very expensive, the production being cut down, cartelisation of – those who are fixing the prices – all that is having a bearing all over the world and certainly on us as well.

We also have realised that we are at a stage where we are making a transition towards climate-friendly steps, moving out of fossil fuel and at this time, we probably even like many countries want to look at gas coming in, natural gas coming in, to replace many of what was dependent on fossil fuel.

But at this time, with international natural gas price also going up, you are facing a situation where you are planning for something at a transitional stage, and that also is now going to be dearer. As a result, your planning is also getting adjusted as we go along to look at giving more incentives for electric vehicles and so. So, the long and short of it, is, yes, we are conscious of inflation. The global price going up on essential goods, particularly those which are important for industry.

The global prices for essential goods are going up. India is not producing enough pulses for its consumption and the country's capacities are still not growing in oilseed production, says FM.

Within India, essential goods, for instance, our pulses and our edible oils, both of which still depend on a lot of imports. Our capacities are still not growing in oilseed production. We are not producing enough pulses for this country as much as we consume. So, we will have to get them from outside and therefore simultaneously increase and we have given some incentives for or we have a scheme through which oilseed production will be encouraged. But still, even then we have to keep importing oil, crude, edible oil or refined edible oil. The countries, which do export this, do understand that India is a very big consumer.

Q) I will come to oil in just a moment. Just before that the Fed Reserve has indicated raising interest rates this year. The US Fed Reserve’s balance sheet is also likely to shrink as a part of quantitative tightening. All this will dramatically impact sharply reduced global liquidity, what will be the impact on the Indian economy and our markets?

I think if I can be fair in saying, since the last six months, the Reserve Bank has been very keenly watching and also the fora, the international fora, in which both Reserve Bank and Ministry of Finance meet with the international leaders, whether it is the G20, the World Bank, the IMF, we have all been closely in discussion with countries to understand how this is going to play out.

The lessons learned from the taper tantrum post-2009 crisis, taper tantrum of 2012-13, the lessons learned out of that are very fresh in our mind. So, we are being sure that none of that will happen. We wouldn't leave all doors open, like the way it was done earlier. We are watchful, and we should make all necessary steps progressively leading towards it so that our economy remains protected to that extent.

Q) Some reports I read, they think that you are a risk taker, this was a budget where you have taken significant risks. You agree with that assessment?

I am glad to know, because earlier I thought the commentary was – no, this team is not yet, and I am glad honourable PM referred to it yesterday saying that this very team about which there was this, very critical observation that they can't deliver. I am not saying I have delivered, but we are very clearly working towards making sure that the Indian economy rises from this trouble. So, if I am a risk taker good enough.

Q) I will come to oil prices which you had just touched upon. So with the oil prices at 90 a barrel and with the Ukraine situation that we are aware of, do you think this will put a strain on fiscal management and if I take the question forward, what is your three to five-year roadmap on fiscal consolidation?

I think we have recognised and reiterated in this budget that the fiscal roadmap, which was given in the last year’s budget, is something which we respect and in spite of this year being, again, a challenge for our consolidation measures, because the focus being on growth, we have to do this kind of spending and this kind of borrowing, but still we have kept it fairly aligned with what we have given last year. We continue to commit ourselves for that kind of the glide path that we have given in the last budget.

Yes, because partly you also see that revenue buoyancy has improved. People might keep commenting on non-tax revenues, not adequate is happening, or even for that matter, talking about tax to gross domestic product (GDP) ratio that the tax base is not widening. I am very glad to say that the ministry, particularly both the Central Board of Direct Taxes (CBDT) and the Central Board of Indirect Taxes and Customs (CBIC), are working very gently towards widening the tax base. All this will help me to have a bit more fiscal room to operate.

Q) I think that the Air India privatisation was a big achievement for this government. Neelachal Ispat Nigam Limited (NINL) has also finally found the buyer but, of course, yeh dil maange more. So, what exactly are you planning to do with Bharat Petroleum Corporation Ltd (BPCL)? Are you hopeful that it will get done in the next year? And what about others like the Shipping Corporation of India (SCI) and Bharat Earth Movers Limited (BEML)?

As I said, in this budget, if you would have noticed, since right upfront I have said that I am underlining the continuity of messages and policy prescriptions mentioned in the last budget. I continue with that. So, I actually don't think it is necessary for me to list out everything that I listed out last time but my commitment to it continues. Air India was particularly a complex subject and in that to keep the transparency at every stage, to be completely compliant in terms of all the diligences that had to be done, it took quite a lot of working together with a lot of people – and that’s how it should be because we are accountable, and therefore, what I would suggest is my commitment remains, it continues, and I shall take things forward even on that account.

Q) If I may just ask you a little bit about the LIC IPO, what exactly is the status of that?

It is going fine, it will happen.

Q) And this year?

I think the schedule is – yes, it should happen this year itself.

Q) And how much are you planning to divest and what is the valuation? Some benchmark.

We will announce it at the time.

Q) Okay, but it will happen this year and the money will come in?

Yes.

Q) That’s great news. Having said all this, I think with Air India privatisation happening, LIC as you have just pointed out, the one thing I want to ask the Finance Minister is why is your disinvestment target so low – just Rs 65,000 crore for next year? A chunk of it could come just from BPCL.

I fully understand. Like the many other things about the budget, there was a time when people said, why is your disinvestment target so high, it’s unrealistic? And you are right in asking me, why is it so low? It is a question of, I suppose, recognising disinvestment will have to happen with all the process and also the question of timing your disinvestment. I have also been asked during the Covid-19, stock market has been performing very well, this is the best time you should have done it. It could be, but it is not just the stock market, which decides on a public asset to be disinvested, there are so many other factors. I have to take everybody on board and move. So, certainly, these are things which to be accountable we mentioned it in the budget, to be accountable at every point in time we have to answer questions in the media about it but it also involves a lot of working together and taking a lot of people together and moving forward. So, naturally, it does consume time.

Q) In many ways there have been many budgets in the past that I have been tracking, always, the disinvestment figure is a fancy number, and you don't end up achieving it. So in that sense, of course, a conservative number is always good. But I thought since you had such successes behind you, it looked like – but I suppose, it is better to be conservative from your point of view. The other big headline – and everyone is wanting more from you on that – is the digital currency by Reserve Bank of India (RBI). When is it likely to happen some details that you could share at this point?

When is it likely to happen is something which I can only answer by saying one word – sooner rather than later. Because once it goes through the parliament – I have just placed it there, it has to get cleared and post that the RBI will move forward to take the Cabinet approval and then go ahead with issuing the digital rupee, I suppose. So, it should happen sooner.

Q) And it will have a new name, different name?

Well, we don't know yet. That's some call, which subsequently, the Cabinet has to take.

Q) Finance Minister, one more thing that is the economists are talking about – they feel that you have underestimated your tax revenue for the next year. I think, it also stems from the fact that even in FY22, you revised it from Rs 15.45 lakh crore to about Rs 17.65 lakh crore. So, do you think that there is a merit in this argument that the tax revenue could be actually much more next year and there is an underestimation?

More than merit, I would hope for it. But because it’s a matter of hope, I can't really already guess it in advance and put it as I am sure about it, it can't be sure. I can't be sure about it. I hope and the indicators show that yes, there is room for it to be revised. But I will hold my card on it.

Q) You would rather err on the side of sort of caution and conservatism.

Absolutely. I think finance is an area where being conservative is not wrong. I think being conservative – not too much – is also being responsible.

Q) What I could pick up from the secretaries’ conversations on television last night – is it some kind of a cushion to cut fuel excise in the coming days with oil at $90 per barrel? Is that something weighing on your mind?

I don’t know whether it is oil, meaning fuel, there are always elements of surprises through a year when you are dealing with the country’s finances. Look at the past year – one of the big surprises or one of the big things on which we didn't want the end consumer, who were the farmers in this case, to be affected. You saw the way in which the urea prices went up. It went up unbelievably high, and we are an import dependent country, particularly, when you wanted some of these very important urea matters, some of the phosphates and so on. You have to import them at that price, but that price couldn't be shifted to the farmer. End of the day, the farmer shouldn't be burdened by it and, therefore, not only you are importing it at a higher price, but you are also making sure that price is upon you rather than upon the farmer. Is that something which we could have expected? Yes, to an extent, we watch futures, we see the developments, but still after a point – being ready for such contingencies.

Q) There are imponderables and petrol and diesel are one such imponderables – you don’t always want to pass on the price rise burden to the consumer.

As much as possible we try to hold but petrol and diesel – not so much diesel, but petrol, for instance, (the crude coming in and petrol getting refined) is now in the hands of the oil marketing companies. Government doesn’t do much about it. Unless it has to come in to say – alright, I subsidise it, you take it and reduce the price at the pump, whereas the fertilizer, for instance, the government imports it.

Q) You just touched upon the farm laws in the last question. What is the big lesson in dealing with this reform? It was a great reform, farm laws – but your government had to back track on it. What are the some of the lessons that you’ve learnt? Considering that you were doing so many reforms in the last three years?

More than lesson, I think it was very gracious of the Prime Minister to say, well, if there is some section that is not convinced, in spite of it having passed through Parliament, and it’s a different story, that there can be people telling me that in the Rajya Sabha there was chaos, there was noise and everything else. But, honestly, the minister stood up to answer, he gave his answer. He gave his answer in the Lok Sabha as well. And after that, the minister was ready to receive any number of delegations – any number of times. But it was good that the Prime Minister took a call and, therefore, it is something that all of us remember when we talk about reforms.

Q) The one market, which sulked a little bit yesterday, was the bond market. The bond yield jumped 15 basis points indicating that the borrowing costs are really going up. Is there a concern around larger borrowings? Do you feel that it is a cause for concern?

But I don’t know to the extent that we have said it, is there an option? To an extent, the government can also pool from the small savings and make up for somewhat your borrowing requirements, but the rest will have to be obtained from the market. But in that we, through the year, keep announcing half-yearly calendar, and within that, keep adjusting whether we really need to reach that much or can we be lesser than that. So, it’s for us to be careful about when we go out there – issue a calendar, but when we go out there and take it. So, the concern will have to be the cost of borrowing. We’ll have to keep in mind if it is going to be too expensive, but time it in such a way.

Q) And have you been conservative in your disinvestment target? Do you think if you overshoot there, you’ll probably be able to cover up?

That and also I think there is still a room for improvement in tax revenues to improve.

Q) So, you’re hopeful?

Yes, look at the January GST collection

Q) So, you could be more buoyant there?

Yes.

Q) Will you table a Bill on cryptocurrency in this session? Is there a hint, in your announcement yesterday, of a 30% tax on gains from transfer of virtual digital assets – that cryptocurrency would be acceptable? Even the Prime Minister had said that cryptocurrency should be used to empower democracy, not undermine it. So, what are your views on that?

From after the tabling of the budget in Parliament, I am trying to draw this distinction between privately generated crypto assets – loosely, said, assets, and what can be a digital currency. If private people creative with digital knowledge, using the blockchain technology and the distributive ledger technology can always create, but that cannot be the currency – they are some kind of assets. We don’t know, we can’t define it. I’m not going to define it. Here we are consulting, doing a wide-ranging consultation on it. Currency, it would, when the Reserve Bank of India, the central bank of any country, for that matter, but the reserve bank in India, issues it. So, that is why, we have gone to Parliament to say, we put the proposal there to say that the central bank, the reserve of India, would issue a digital currency. Whereas what happens outside, because there are transactions, they are transactions yielding certain kind of profits – we decided to go ahead with taxing them in the meanwhile. But, post the consultations, I  will certainly be coming up with the bill. Whether that’s possible within this session or not – is something which I’ll have to see.

The government will certainly be coming up with the cryptocurrency bill, says Sitharaman.

Q) On regulating crypto currencies? The bill?

I don’t know what kind of bill will come. Will it be a bill or what will it be – I don’t know. I’ll have to see what the consultation yields.

Q) India has emerged as the third largest ecosystem for start-ups. I think our start-ups have done brilliantly well. In the last three or four or five years, we are talking about valuations of 10, 15, 20-odd billion dollars in each company. And you have proposed to set up an expert committee to look into this. Venture capitalists and private equity investors have invested close to $70 billion last year, the figure could touch $100 billion this year. I think these are absolutely monumental achievements in many ways. Could you elaborate a little bit on what this expert committee will do, who will be the members, and what is your vision for the start-up ecosystem?

There will be specifically two different consultations – one with the Prime Minister and one with me. The private equity people in India and the venture capitalists did suggest that there are quite a few things on which they expect the role of the government to be a facilitator and also we saw the potential in their presentation and also very clearly they have shown it in the way, like how you described. They have supported quite a few IPOs, and supported a lot of start-ups. And therefore, the way in which and the speed with which several of the Indian start-ups could become unicorns – the weight of ideas they have are so substantive – that funding has reached them. But the funding exists in India and that reaches them is the message that I want to give, that particular point is what my attention is on. And therefore, when that capacity exists in India fund, to be able to be professional enough to look at those innovative ideas for which they are willing to invest in, the discussions between them and the Prime Minister once when they met me, clearly proved that we need to look into the granular details which will make for a good sound understanding and also ways in which we can come up with the policy which will be supportive. And therefore the budget has come up with the suggestion that will form a committee of people who are well-versed in that area, who can sit and engage with the private equity people and also the venture capital leaders and give us some thought. We have not decided on the names as yet.

Q) Do you have any sectors in mind that deserve a push?

I want the committee to have full play in it and for them to come back.

Q) This committee will work with you closely?

They will be first of all working with the private equity leadership and also with the venture capitals. And then they will come back to the government.

Q) What about Fintechs and digital payments? What is the government’s vision and roadmap for digital payments and how do you look at neobanks?

First of all, during the pandemic, look at how Indian citizens have readily accepted digital payments as a medium through which they can run their daily lives. And in this there is no difference between rural or urban, women or men, educated or semi-literate, none of that. Truly democratised digital environment and in that we were also successful in being able to reach out to every eligible citizen during the pandemic when the Prime Minister wanted monies to be given to them to meet up with any exigencies that might arise. When even developed economies were looking at people to go deliver cheques doorstep, we didn’t do any of that. We had accounts directly receiving the money. So India has shown great strides in the payment ecosystem, in democratising digital adaptation – digital ways of payment becoming democratized. Now this is a very big message which we will definitely have to leverage when you talk about India and the rest of the world. other than that in yesterday's budget itself, look at various digital matters that I have spoken about – Digital University; digital education at primary level as well; digital payment system, which we already address; digital ways of registering your property from wherever you are in India, if a property is in X state and you are living in Y state you can still to digitally; digital ways in which your recording the contours of your properties; E-Shram portal where labour is getting registered – all this is digital. You are also talking about Aadhaar where we have reached near-saturation. Now, the idea is to make sure that all these digital platforms talk to one another, they should be able to communicate better, and bring in that interlinkage. Now eventually in the next 15-20 years globally your digital stack will have to be able to communicate with the digital stack of the rest of the world. So, India’s stack as it gets built up – should also at various layers and levels – be able to communicate with their compatriots from elsewhere. So the technology honing or sharpening, and matching up to be able to communicate is the next level and India is sure-footed on that – it is actually showing the leadership. Now, with this kind of an achievement you are already at the high table of determining Global policy on this. And when you are determining Global policy, you are able to be the leader, to show how things have to be executed and the interest that you have to have protected in India. For several of these patents, for several of these things, which has now brought in common good should also be shareable with the rest of the world. So the plan would be, for the next 25 years, for us to have that lever.

Q) Prime Minister Modi spoke about making India a $5 trillion economy by 2024-25. That was of course an announcement pre-pandemic. What is your assessment and by when do you think we can get there?

I understand that the pandemic has brought in a bit of a drag. But this morning’s speech by the PM also has brought in that comparison in a way. Seven-eight years ago, what was India? Where was our GDP, where was our FDI? Where was our foreign exchange reserve? Where was our level of investments? In each one of these course, on each one of these heads, we are at least two and a half times better than what it was 7-8 years ago, despite the pandemic. (Our GDP is) $2.3 trillion today. So obviously, if we are consistent, predictable policies are in place – and therefore with consistency you give the message to the economy you are not going to be too disruptive in terms of taxation, in terms of policies which would hinder people – you are sure to reach the target.

Q) So, within the same time frame or could there be a delay?

I would like it to be in the same time frame, but of course the pandemic and its impact is not something which I can hide or anyone will fail to recognise.

Q) Former finance minister of India P Chidambaram has said that your Budget speech was the most capitalist budget speech he has heard. Do you take that as a compliment?

For a person who belongs to a party that claims 1991 opened up the world to India and India to the world, globalisation was brought in – and that was the way in which Congress party always wants all of us to remember that ‘we were the ones open socialist India to the world’ – for them to say this was a capitalist speech, obviously, it would certainly be a certificate.

Q) And considering that in 1997 he said his Budget was the dream Budget…

And it is the author of that budget who says that this is the most capitalist [Budget].

Rahul Joshi: Finance Minister, thank you so much for your time. Thank you for the first interview today to any television channel. We hope to keep the conversation going. All the best.

Nirmala Sitharaman: Thank you very much for giving me this opportunity.