Nirmala Sitharaman presented her second Budget on February 1.
Budget 2020 lays down a comprehensive framework to revive consumption and investment in the economy, Finance Minister Nirmala Sitharaman said in an exclusive interview with Rahul Joshi, Group Editor-in-Chief and MD, Network18.
The FM said that signs of revival are already visible in the economy. “The recent data is pointing to a revival,” she said.
She commented on the tax changes introduced in the Budget, saying that the new structure makes tax compliance easier, adding that the announcement of a new “tax charter” makes the government’s commitment clear of easing taxation procedures.
The lack of big-ticket announcements in the Union Budget meant the market reacted negatively. But the FM said that since “was not in full force” today, it will likely digest the full scope of the announcements and recover on Monday.
She added that slippage on the fiscal deficit – the government had targeted 3.3 percent deficit in FY20 and came in at 3.8 percent – would not be a negative as the Centre had been extremely responsible with its finances.
Q: In some sense, it was one of the most challenging times for you to present this Budget. GDP growth at an 11-year low, private consumption at a 7-year low, a whole set of macro numbers at historic lows. What were you really thinking of, when you were presenting this budget? Did you have to balance a lot of factors, like keeping growth in mind on one hand and all the rest of it on the other?
A: Absolutely, it was the desire of the government that we address every section which was expecting something out of the Budget, if possible. Our attempt was to make sure that we came up with something which would boost consumption, put money for investments and creation of assets. With private investment at a slow pace, we did not want to, at any point between July and now, cut down on public investments. On the contrary, we have only increased it. So, the capex between July and now, if you look at the data has only gone up. So, in a way we were very clear that while we were addressing the supply side issues, it was time for us to make sure that consumption and also investment, because we wanted to boost demand, had to be kept up and that is the story.
Q: How has the budget addressed these two big concerns, the demand side problem and the economy being investment starved. How have these twin issues got addressed with your budget?
A: That is one of the reasons why I started by saying – private investment will do their own whenever they take their call on it. We have shown our intention by cutting the corporate tax rate. We have brought it down to the lowest level. So we wanted to tell them we believe now that you will make decisions with such an attractive tax rates.
However, from the other side, from the government side, we wanted to make sure that money was going for investment and that is why the Prime Minister’s (PM) announcement on Independence Day - Red Fort address - he spoke about a Rs 100 lakh crore in the next five years. We didn’t wait for the Rs 100 lakh crore projects to come, we ourselves spent a lot of time talking to states, talking to different private sector people and putting together a pipeline of 6,500 projects – some of which are greenfield, some of which are brownfield. But all of which, if only attended through state governments or through private participation with central government, can make a big difference to the entire environment. One, by creating the assets in the infrastructure sector and two, by making sure that the cascading effect of that will bring in positive impact on industries like cement, iron and steel and so on - also employment opportunities to a lot of people.
If that is the way in which we wanted to make sure money was going for investment, one investor facilitation centre is being started. Sovereign funds have in the last six months, been contacting us because they see India as a positive investment destination. They want to come and invest in India. For them, we had to keep the pipeline ready. No point if they reach here and then search for projects. More than that, we have also given them concessions in our fiscal policy. We have given them tax concessions and while giving the tax concessions, specified that if they were going to spend it in infrastructure, lock-in period being a certain number of years - three years – we will give them the concession. All this has been tied up. So we are not talking today for it to happen some years later. Everything is kept ready, it should all start playing out soon.
Q: I will come back to this point a little later. I want to ask you a broader question. Do you see the economy as having bottomed out? We are seeing projections of the GDP growth rate of 6-6.5 percent. How do you see the economy and when do you think it will start reflecting in a turnaround. In the first half or in the second half of the next fiscal?
A: I thought some of the data which has been released and the kind of common speech you hear from international observers and also the Indian industry themselves are all very clearly indicating that negativity with which people spoke about India immediately after the July budget; they must have had their reasons, I am not faulting them for it, but the negativity with which they spoke, the sentiment about which they were referring to, have all now gone away. At least I have not heard them speak about it. I can see some of the data which is coming through, showing there is a turnaround. So I have a feeling that if we keep up this pace of listening to the industry, keeping in touch with them and responding to them, I think we will possibly be moving towards a very constructive phase.
One of course, at the same time, also has to watch what impact all those interventions which we have done, have had.
Q: Where do you see the green shoots in the economy? The former finance minister today said that 6-6.5 percent is not only an astonishing figure, it is also an irresponsible figure being given by the government?
A: I would have thought that this budget, if anything, has really put in a lot of work to show that we mean every number that we have stated.
Q: Will the budget really stimulate rural demand. I think one of the things that everyone was looking forward to in this budget, was how rural demand will get stimulated. So what are some of the specific things you feel will do that?
A: The fact that after due consideration, nearly 3 lakh crore been allocated for agriculture and rural development put together. There are the various specific schemes which the Prime Minister has been talking about and the focus on aspirational districts, backward among some of the states which are doing well and backward among those which are not probably doing so well, about 112 of them have been chosen. We are looking at building hospitals there, getting two tier and three tier cities in those aspirational districts also to pick up, bringing in self-help groups (SHGs) as a backward linkage for aggregation in rural produce, making sure the coastal fishing villages will have their own fish Farmer Producer Organisations (FPOs), bringing the NABARD and Mudra to the rural areas to give them more of such loans with which the farmers’ issues will be addressed, where silos can be built at taluka level. These are things with which we think the rural issues can be meaningfully addressed.
Q: Why do you think the markets are disappointed with your budget, have they not understood it in its full sweep? Sensex is down 1000 points, Nifty down 300 points. Were they looking for a big stimulus in sectors such as infrastructure, real estate, non-banking financial companies (NBFCs)?
A: Rs 100 lakh crore – five years but I have said the moment there is a requirement, I am ready to frontload it. The first line itself is I am willing to frontload it. I have given the pipeline.
Q: Is there provision in this budget for that?
A: Pipeline investment numbers have been very clearly put. Rs 22,000 crore has already been given for those two companies, which are going to do long-term investment in infrastructure funding. So all this is– in any case today to be fair the stock market was not in full force. They were there, but many of those concerned wings within the stock markets have not all been functional. It is only on Monday when they have to-I am very confident the stock market will understand every aspect of what I have said in this Budget and the kind of push that I have given for bond market, for deepening the bond market, for strengthening the bond market and making sure that India understands that there is one world out there which has still not been exploited fully. These are things which I am sure that the markets will understand and respond on Monday.
Q: You are hopeful that the bond market will react positively to the budget?
A: Of course, there has never been these many steps taken for bettering the bond market.
Q: You are also banking a lot on foreign investment. You made it easier for sovereign wealth funds to invest in infrastructure, FPIs can invest more in debt now, up from 9 percent to 15 percent, what was the thinking behind this?
A: Only because it is possible now. You already have a lot of cases of banks and other such institutions, in fact many NBFCs themselves raising funds from outside. They are doing it because they think the cost of borrowing is far lesser when they do it from outside and understandably so. It is possible for us to be able to encourage many such borrowing from outside and therefore make the Indian savings be available for many others who cannot go out to borrow. So whilst opening it up, you are making sure that there is credit availability both from borrowing outside and also from inside. The cost of capital also will come down once you are able to get it from outside.
Q: I will go back to the point you were making earlier about this push to infrastructure. You talked about this Rs 100 lakh crore to be invested over five years, are you confident that this will be done over a five-year period and that the PM’s dream of a 5 trillion economy would be realised by 2024?
A: Absolutely. Because – see projects and their absorption capacity also doesn’t happen within one year. They spread the cost - as the project gets executed in stages, you get more and more resource requirement which goes in and therefore to spread it over five year is not so much from our end saying we don’t want to spend now: we will stagger it. It is more the absorption capacity of the project itself. Even they will take their own time to take more and more even the funds are available they can only take a certain level at any point of time.
Q: The economy will grow in double digits to be able to get there in five years or will we have to push this deadline?
A: I am making all the necessary steps to give that stimulus to the economy.
Q: Let me come to the fiscal deficit. The fiscal deficit has slipped yet again to 3.8 percent; my first and direct question is: will it lead to a downgrade in India’s sovereign rating, is there a potential risk of that?
A: I do not see that at all because we have been very responsible about the way in which we have used the forbearance in the Fiscal Responsibility and Budget Management Act (FRBMA). The act provides for forbearance of 0.5 percent, we have not crossed that.
The numbers that we have given—different heads, different places, different numbers—are all responsible numbers. I have even made a mention as to why my numbers this time given the fact that I have used the forbearance, are well within the framework. So, I do not see India’s ratings coming down because we have breached the fiscal number.
In fact we have complied with the framework given to us. If I do not do that and if I am stubborn about a number that I have, in today’s situation, I am expected to spend more, how will I do that, unless I use the escape clause which is available for me. I have not violated that.
Q: The NBFC sector which is a major source of credit also for the economy is in serious trouble. What are the steps that you are going to take to assure investors, the market that you are working towards solving this big problem?
A: Haven’t I made a mention that there will be -- first of all before the budget we had given a partial guarantee scheme for them that they can pool their assets. First 10 percent will be supported by us, the stock cap will be given by the government, all that has been used by several of them. The Reserve Bank of India (RBI) is constantly reporting on how that is developing.
Even now, what we have done is to be able to bring in the MSMEs so that they do not burden the system and liquidity is available for NBFCs. We have now announced that that kind of a facilitation will be done for the NBFCs also. So, we have not ignored the liquidity requirement of the NBFCs.
Q: Markets seem to be disappointed. Probably long term capital gains was one expectation that did not happen. Do you see in the future, today budget is not the only day when you make all the announcements, would you be looking at more market friendly measures in time to come which will give them more confidence?
A: Do you think the market has seen the DDT having been removed from the companies?
Q: That was one thing that they were expecting would happen.
A: So it has happened.
Q: On the personal income tax front, on the one hand you have delighted the middle class by showing the cuts are deep and that they are serious and that you mean business. But on the other hand tax experts say that what you have given from one hand, you have taken away from the other because the exemptions will go away.
A: There are some exemptions which will continue even in the new, some of them.
Q: The analysis seems to suggest that if somebody is not invested anywhere, there are no exemptions, it is a definite positive for them but otherwise it has become more complicated, you can choose between one or the other and I suppose next year you can move from one to the other as well and come back to it. So, doesn’t it complicate?
A: No it doesn’t. Ultimately in India we want a simple, easy to comply and lower rate of tax, a taxation system which is easy to comply with. Over the decades, I did say that in my budget speech, more than 120 exemptions are available on the liste. Now if you are a tax payer and looking at 120, imagine what you have to choose from and does that help you?
I fail to understand one point, the incentive given for people for saving, I have given the money back in your hand, don’t pay tax to me and that money in your hand, you as an adult earning your wages or salary or profit or whatever is a rational individual to make a call on how you want to use that money, spend it or save it. So to put this argument to me back saying incentive to save would be gone away…I find it very patronising that a tax payer wouldn’t be mature enough to take his own decision on his money?
Q: In fact it might open up more avenues of investment for him.
Q: So is that the idea because the savings have been coming down over the last 3 or 4 years.
A: It should be the choice of the income tax payer as to where he wants to spend his money or keep his money. It should also give the comfort to the tax payer that the system is simple. Eventually if not today some time I would want to see government of India removing all the exemptions like they do in many of the progressive societies and if that has got to be done, it is no good if I say, it will happen sometime in 5 years. I have taken the first step towards it.
Q: But you will eventually move towards replacing it with the new tax regime which is simple, which is simplified?
A: And which benefits everyone. I have given numbers in the speech itself to say, if you were in the old tax regime and if you are in the new what is it that you gain. You still gain nearly Rs 78,000, if you are in the Rs 15 lakh bracket, by being in the new system even if you were using some of the exemptions in the old system and by you coming into the new which has very few exemptions given to it, you are still better off. So, I am giving an option, I am not forcing you to come here.
Q: But over a period of time, it will be simplified?
A: That is right.
Q: Would you follow this for higher slabs as well? Is the philosophy the same – simplify, increase compliance and lower the rates?
A: Philosophy is the same.
Q: So even in higher slabs we can expect this in the next few years?
A: I do not want to speculate on that now, but now the intention is reach the money to those who need to have them, reach the money for those who want to spend them, reach the money for those who want to have money in their hand to take a call on what they want to do with it-- the middle class, we reach them first. Eventually, yes, we will look at others also.
Q: Your aggressive disinvestment number and largely on the back of the LIC IPO…
A: Not largely on the back of LIC.
Q: You are getting Rs 120,000 crore from the usual privitisation and the rest of it, Rs 60,000 crore maybe from LIC and IDBI. What I want to understand is will you be able to achieve this number? How confident are you of getting through Air India, Container Corporation of India (CONCOR), Shipping Corporation of India (SCI). Do you think all this will happen in the coming year?
A: It should happen because I announced something in the July budget. To be fair, how quickly does the government machinery move? Between July and February, they have done all the footwork they need to do for reviving the sale of Air India, looking at CONCOR, looking at SCI, you have listed it all and in the meanwhile also attending to something totally different from it, the ETF (exchange traded fund), which is not a disinvestment, but they are looking at the ETF. Through the ETF they have shown success as well. For a government department to move on these fronts so quickly, I announced it in July and I am conceding that within this financial year I may not get the benefit from it, but yes, it will happen in the next.
Q: So will you be able to meet your target this year?
A: No, that is the point I am making. They have done all the footwork, I do not see it getting done before March 31, although I did say I want this happening before the end of March, the extent of footwork that they had to do, look at the fresh terms of conditions and so on. So it will move.
Q: But because of this footwork next year you will be able to do Rs 2,10,000 crore that you are confident of?
A: That is right.
Q: The other interesting scheme is Vivaad Se Vishwas Scheme. How much are you planning to mop up from this? Your earlier scheme for indirect taxes has been a hit, you have been able to garner a substantial amount in just four months; if I remember right, about Rs 40,000 crore. So, what is your expectation from this?
A: I have a feeling that people are fed up of litigation and they have been waiting for a scheme. This is not amnesty, I am very clearly telling them that they have to pay the disputed tax amount, but what we are willing to completely forego is the penalty on it, the interest on it, the interest se upar interest on it and so on provided they join it before March 31, 2020. I am giving two full months on it. If you miss March 2020, yes till June you may do it, but that would be on a slightly different rate of some more money to be added to it.
So I am very clear, at least from the way in which between July and now I have been meeting with a lot of people all over the country in talking with them about taxation, the harassment that they tell me they undergo and so on that they are looking for a decent option to close this whole chapter.
Q: The money stuck is huge, I think close to Rs 650,000 crore?
A: That’s right, neither they nor government benefits from it.
Q: So you are hopeful to get the big number this year itself, by March 31?
A: I guess so.
Q: Another question that even the former finance minister Arun Jaitley raised last year. It was very nice of you to bring him in today, a very personal touch there. Last year he spoke about investigative adventurism. Today you spoke about the same thing as well. You said that tax harassment will not be tolerated at all?
A: We have come with a charter, tax payer’s charter which is getting enshrined in statutes. We will probably be the fourth country in the whole world which USA, Canada, Australia are the only 3, as much as I know, who have got a charter. So no good for us to go on saying that we trust the taxpayer. We are showing it in action. We are putting it into the law.
Q: But from what you say and what is happening on the ground is pretty different. Every other day we hear of tax raids, ED and CBI raids and this is impacting business sentiment in some sense. What would you say to that?
A: That’s exactly the point I am telling. The intent of the government is not just to go on saying. Now we are proving it that we are enshrining it in the law itself that tax payers will have to be given a certain assurance that we respect them, but one line I would take this opportunity to say - if there is a very substantial reason to pursue somebody because of money laundering; I cannot now tell my agencies to sit back and say, no-no it is giving a bad impression. They will have to keep doing their lawful job. If there is evasion, if there is money laundering, I cannot for the life of me think that I should look the other way and not enforce law. I want to draw that fine distinction between harassment which should not happen but pursuing wrong doers.
Q: Another point - it is not related to the budget directly, but we have seen a lot of CAA protests in the country over the last few weeks we have also seen a lot of international press turning against India. Do you think it impacts business sentiment and will it hamper at some point capital flows into the country?
A: I don’t think so because the data in the last 2-3 months show that the flow is continuing. In fact many of the sovereign funds have been enquiring with us as to where they can put their money. I have announced some concessions for them. I don’t think it is affecting India’s image because we may have started late, but we have very clearly explained that it goes against nobody and it doesn’t question the citizenship of anybody. It does a lot to give citizenship and not remove citizenship and it is something which suited all political parties when they were in power, they gave assurances but they didn’t fulfil it. This is not something which we have come to do today without taking the mandate of the people on it. We have put it in our manifesto, many other parties have also put in their manifesto. We have gone to the public seeking vote inclusive of this point and we have got the mandate. Are we to do the job or not? So I don’t think we have done anything as a surprise.
Q: The other point, about corporate India leaders sometimes complaining about micro management at the highest level. Tata Chairman N Chandrasekaran recently even said that supervision is good but suspicion is not. I know that you also have been meeting a lot of corporate leaders over the past few months. What would you say to corporate India’s captains who are looking to you for guidance?
A: The faceless assessment is one of them, there is not going to be human interface now in tax related matters. It is all going to be using technology, artificial intelligence, and big data. We are going to use all of them so see where there is an element of suspicion. Even then, we are going to only ask questions through digital mode. We are giving a number for everything, so that it is centrally generated and at the local level no discretionary settlement happens. So all this is towards establishing credibility of the system.
Q: Today you have in your budget raised custom duty on a host of household items. Are you finally listening to your core voter base who has been really upset since demonetisation, has really struggled after demonetisation?
A: I don’t think there is a directly link between demonetisation and this step. This is a step where very clearly Indian MSMEs were producing good quality goods which are end products. They are not raw materials, but household goods which were all being marketed and sold by them, and are now being cheaply dumped into India at half the cost of production. They are not intermediary products, they are not raw materials, and they are not inputs for downstream industries. If these which are being produced by our MSMEs cannot be protected against a massive dumping which is happening at throwaway prices, how can be protect our own industries. So I think it is important that this be seen not as a protectionist measure, but very clearly a measure where dumping, unparalleled extent of dumping has to be contained.
Q: Is that the same thinking that reflects in your dealings with eCommerce companies and the royal cold shoulder to Jeff Bezos in India? The deep discounting that these companies are doing which is hurting the small trader?
A: This is more on the goods which are coming.
Q: It is a different point that I am making. Is the thinking the same, the small trader is getting hurt because of deep discounting and some practices by eCommerce companies?
A: Not just the small trader, but Indian manufacturers too are not finding a place. Trader of course comes afterwards. Both of them are suffering. Yes, all this has a bearing on your economy, doesn’t it?