Analysis: FM Sitharaman links secularism to government welfare programmes

Finance Minister Nirmala Sitharaman.

A key parameter to assess a country’s economic management is to test it against markers of managing transition. In 2013, a few months before the Narendra Modi government assumed power, a financial analyst at Morgan Stanley clubbed India among the “Fragile Five” along with Turkey, Brazil, South Africa and Indonesia, to represent emerging market economies that have become too dependent on unreliable foreign investment to finance their growth ambitions.

A large part of this turnaround, despite the challenges posed by the two pandemic years, can be attributed to the Modi government’s ability to push through critical reforms that had remained blocked.

Unlike China, where policy paths can be quickly adjusted to meet targets, India’s democratic framework erects constraints that have to find their way through a maze of layers spread across power structures, including the legislature, the executive and the judiciary.

Finance Minister Nirmala Sitharaman, in an exclusive interview with Rahul Joshi, Editor-in-Chief of Network18, spent some time driving home this point.

She outlined the significance of coordinated efforts between the central government, state governments, and local bodies and stressed the need for synergy in implementing reforms, “When reforms are talked about, we normally always say, three levels, where it has to be carried out with the same vigour,” she said in the interview.

Tax reforms, both direct and indirect, are a case in point. The goods and services tax (GST) sought to offer a one-shot solution. It was argued that GST, once adopted, would consolidate this web of levies into a single tax.

One of the several reasons GST’s implementation faced political hurdles is the fear that it could rob state governments of their fiscal powers, leaving them with very little fiscal elbow room to raise revenues. The big question, of course, was, what if revenues for states fell short after GST came into force?

GST rolled out in India in a grand midnight event on June 30, 2017, ending a decade of confabulations. The rollout, regardless of the design flaws in the system, should stand out as a key success of the Modi government’s ability to ensure bi-partisan political support and agree on the need to stitch a common national market, dismantle fiscal barriers among states and replace a welter of regressive local levies with a single tax.

Direct tax reforms remain a work in progress. “The direct taxation reforms are a steady job in the pipeline, and some results come out, and more work is happening,” she said.

India’s emergence as a preferred investment destination has also been driven by policy consistency, non-hostile tax laws and rules, domestic market size, the potential buying power of the local population, availability of local labour and technology, and export.

Global brands are also beginning to “make in India” an essential component of their China-plus-one plans. Apple Inc. CEO Tim Cook, who visited India last year, described it as an “incredibly exciting market” and a “major focus” for the company.

The government has also frontloaded investments in infrastructure by accelerating the pace of highways, ports, and airport projects to considerably reduce logistics costs and time and to initiate a “crowding in” effect of private sector investment.

Sitharaman has placed her bets on this textbook assumption of economic multiplier on spending on roads and ports to play out in the real economy. The decision to raise capital expenditure by 11 percent to Rs 11.11 lakh crore in 2024-25, on the back of a 33 percent increase in 2023-24, is primarily driven by this.

“I am very hopeful that it will get used. And the amounts which are given to states are also having high utilisation,” she said.

The workmanlike Interim Budget or Vote on Account, which had no major tax proposal changes or new flagship scheme announcements, can also be seen as demonstrating the government’s intent to decouple reforms and policymaking from the electoral calendar.

People on the ground are talking about programmes, the finance minister said in the interview, describing this as “secularism in action”.

“We have not shown any discrimination between members belonging to this community or that community or this religion or that religion or someone’s relative. The project reaches the ground for everyone who deserves to get it; if they are eligible, they get it, irrespective of who they are,” Sitharaman said.