The government has taken a number of measures to put growth back on track, though falling exports and a weak global economy are playing spoilsport, minister of state for finance Jayant Sinha told HT. Excerpts from the interview:
RBI governor Raghuram Rajan has said that he worries over a drop in investments.
I need to study governor Rajan’s comments. In reality, while private investments are down, FDI is up 40% and public investments are also up. In FDI, a lot of money is going into e-commerce and auto sector; in electronics, a lot of smartphone manufacturers are setting up units. We have allocated Rs 70,000-80,000 crore for roads in the Budget. The amount of kilometres constructed per day has gone up dramatically. We have also put in place Rs 8.5 lakh-crore investments for railways for the next five years. You can see activities happening, whether it is the setting up of a new locomotive factory or railway lines that are getting built.
Is there any chance of tweaking the recommendations of the Pay Commission?
We are examining the report. We are determined to implement it from January 1. We don’t want arrears to build up. The previous government let a lot of liabilities build up. By kicking the can down the road, you just end up putting the fiscal situation in a deep hole. We wanted to clear the refund backlog.
How is the Indradhanush programme moving?
It is a seven-step programme. We have implemented most of the steps already. We are making sure that banks are vibrant and competitive. We have taken steps on NPAs, governance and talent management.
What about hiring more talent from the private sector?
It is a function of what position is opening up. We are open to considering private sector candidates. There are restrictions on certain levels. So we have to think carefully, but are we are open to talented people coming in and helping banks.
What steps are being taken to reduce NPAs?
We have transparency on large credits, we have JLF (joint lending forum) and strategic debt restructuring. These two mechanisms are in place. We have DRTs (debt restructuring tribunals). We will be bringing in the bankruptcy code. We know there are certain industries like steel, aluminum, sugar where there are policy questions and industry-wide issues. Besides, there are case-by-case situations where we can provide additional support to banks. That is where the NIIF (National Investment and Infrastructure Fund) will play an important role. It will have the distress-investing capability, where it can step in and look at assets to see which of these can be owned by NIIF on a commercial basis. That way we can bring in fresh equity and restructure those assets. All these matters are in discussion.
Will the small savings rate be brought down?
We are trying to put in place a mechanism that will take into account the needs of the many crores of people who depend on small savings. Like a lot of government policy making, we have to balance certain things.
When can we expect the bankruptcy code?
We might have to take it to the standing committee and conduct a thorough examination. It will take time. But once it’s passed, we will have a world-class bankruptcy resolution.
How do you plan to address farm sector distress?
When you have two deficient monsoons in a row, there will be challenges. We are doing a number of things -- national crop insurance programme, soil health card, Krishi Sinchai Yojana -- to ensure that the agriculture sector does better. It is a sector where it takes time to make sure that all mechanisms work, just getting irrigation in place in the country is a multi-year exercise. It is not something you can do overnight, so we are going through a process where we will develop district irrigation plans.
The budget had projected a GDP growth rate of 8-8.5%, but now we are talking about 8%. When can we achieve that?
Domestically we are doing what we can. But with exports declining and a weak global economy, it is very difficult to get to a very high growth rate. Every time we have grown quickly in the past is when we have been helped by exports. Right now, exports are hurting us. We have also gone through two deficient monsoons, so agriculture is hurting us. What’s driving growth right now is services and manufacturing.
The advance tax numbers from companies do not look upbeat.
But indirect taxes are doing quite well. Corporate tax is very seasonal and much of it comes in the third and the fourth quarter. They are running at a level slightly below what we have targeted. That can be made up in Q3 and Q4. Indirect taxes are a better gauge on the economy. Remember direct taxes are paid on your profits and are paid at a lag once you close your books.
What is the stance of reforms?
Our priority has been “sab ka sath sab ka vikas”. We are working with all important ministries across sectors to ensure that the entire economy benefits. The most important priority for us is job creation. If we want to help our students with jobs, our farmers and our middle class, we need to ensure that our businesses grow.
When we took charge, our first priority was to stabilise the macro economy. It typically takes two to three years, but we achieved all of that in a year. However, it required a tight monetary policy so the interest rates were relatively high. It also required a fiscal compression to ensure that our fiscal deficit numbers would come down. We also had to bring down corruption to restore the confidence back in the government. All these require significant adjustments and it took us 12-16 months to stabilise all of that. We were fortunate that oil and commodity prices came down and we were able to achieve the macroeconomic stabilisation much quicker.
There is a thrust on startups but 90% of them fail. So when you say loans have to be provided, what is the logic?
There are very different kinds of startups. There are scalable companies that are venture capital-funded and those are companies that 90% fail. There, the financing is different. It gets equity financing by sophisticated investors that know how to manage those businesses. The second type is reasonably small enterprises -- Rs 1-2 crore, medium-sized family owned, which are run conservatively and typically do not fail. Third type of businesses is micro enterprises. Mudra is intended for the micro enterprises. Banks have established protocol for each category of Mudra loan -- Shishu, Tarun and Kishore. The notion is that as you borrow, if you show a good credit history, you will be able to borrow more but if you don’t, we are getting the Aadhar and PAN (permanent account number), and you will find it difficult to borrow later.