Nirmala Sitharaman interview: ‘Important to back asset creation’

In conversation with HT's R Sukumar, finance minister Nirmala Sitharaman explained how —via Union Budget for 2021-2022 — the government wanted to give a boost to public expenditure through good quality expenditure for asset creation such as roads, ports, and other infrastructure.

Hours after presenting the Union Budget 2021-22, finance minister Nirmala Sitharaman spoke to HT’s R Sukumar and Doordarshan’s Ajay Mishra, on some of its key highlights. She discussed the increase in health allocation in the times of the coronavirus disease; said that the privatisation of banks was on the agenda since the government was keen to operate only healthy public sector banks that could scale up; pointed out that the Initial Public Offering of LIC — expected within this fiscal — would be over and above the announced disinvestment target of ₹1.75 lakh crore; and that the new Agricultural Infrastructure and Development Cess (AIDC) on fuel and liquor will not increase the burden on the consumer, but create a dedicate fund of an estimated ₹30,000 crore for agricultural infrastructure.

Finance Minister Nirmala Sitharaman, center, with junior Finance Minister Anurag Thakur, left, leave finance ministry for the parliament house to present annual federal budget, in New Delhi, India, Monday, Feb. 1, 2021.(AP)

Edited excerpts:

After the coronavirus pandemic, everyone was apprehensive about what the budget would bring. What have you sought to achieve with this budget?

With this budget, we wanted to give a boost to public expenditure through good quality expenditure for asset creation such as roads, ports, and other infrastructure. This would increase demand in core industries such as cement, steel, power generation units, and heavy duty machinery. That, in turn, would generate employment and put money in the hands of the public. We are told that it takes five years to spend on infrastructure projects, but that’s not accurate. It takes five years for the project to get completed. In the meantime, jobs are generated immediately. Because of this, the economy will receive an immediate boost. This is specifically true for infrastructure, health and agriculture sectors — all three of which are vital for the benefit of rural India.

One of the key things that we see in the budget is the resetting of priorities. In 2020, the primary aim was welfare. As a result, we saw an increase in expenditure, which is also evident in the deficit. You have kept the expenditure at the increased level, but you seem to have reoriented towards capital expenditure. How do you balance this out? Is there an assumption in this that things are returning to normal and people will not need that kind of assistance that they needed last year?

The balance is expected to get reset largely by the fact that the money is going only for capital expenditure. When you create windows for capital expenditure, you’re confident that what you’re spending money on is actually asset creation. Therefore, the kind of money going into the hands of the people directly, without looking at what it’s going to create — it will create short-term demand, yes — but when it goes through this (asset creation) route, it also gives encouragement for sectors that will help create better roads, ports, other infrastructure facilities. Thus, it has both short-term and long-term impact. By giving money directly into the hands of people, yes, it helps them, but in the early stage of pandemic, we also saw that the money got locked up in their accounts. Anyone would do that. You don’t know in these periods of uncertainty, whether you should spend that money or save it. So the way in which we have looked at this, is capital expenditure is a sure shot way to create that virtuous cycle.

It was a bold step to increase capital expenditure. But everyone is also looking at this budget as a health care budget.

In the matter of health care, certainly the institutions which are important for the public at the village, block and panchayat levels, will receive the money that they need. The Finance Commission has also recommended that the untied funds pertaining to waste management or water treatment should also be utilised for health care infrastructure. Whenever I talk of health, I am very clear that we need to have a holistic approach. We can’t think of sanitation as a separate issue. It’s not just about making hospitals. You may recall, at the start of the pandemic, we only had two laboratories for testing Covid-19 samples. The whole country’s samples would go there. During the pandemic, we created 200 testing laboratories. Now our aim is that we should have the capacity to test at block level.

How do plan to spend the amount of ₹35,000 crore allocated for the Covid vaccine? Is it only for this year?

This allocation is for this year alone and if more money is needed to be spent on it, I am committed to give it.

Other than expenditure on health, which was expected, one of the other apprehensions that people had was of a Covid cess. Some said there would be a new tax on the super rich, and there were fears of a wealth tax, because the revenues had to come back. You’ve steered clear of all of this. How difficult was it to resist the temptation, and how well do you think we will address the challenge of revenue generation?

At least for this year ending March 31, we have clearly shown our intent on how to improve GST collections. We’ve not done anything other than usual. We’ve only made a conscious attempt by using Artificial Intelligence and Big Data to plug the loopholes and, as a result, we’ve seen that compliance is improving, the false and fake bills that were being used to get refunds have stopped, and the bad temptation among a few people to evade [payments] has gone down. On the other hand, I’ve also made it plain that disinvestment and asset monetisation are both going to take top priority. All idle assets, which cannot help the economy, are going to have to be monetised. With these two — better revenue collection and asset monetisation — we think that we can realistically achieve the targets we have given ourselves.

As far as tax is concerned, I have been clear from the beginning, when the Atmanirbhar (self-reliance) announcements were being made, and many country’s examples (of stimulus packages) were quoted to me, I would quote back an example of a country — and I’m not taking the name here — which spent more than 15% of its GDP as a stimulus package but, in December, said that they may consider a comprehensive tax increase across the board. That was the point at which I said that we had not even thought along those lines. And today we’re showing that has not been on the board ever.

You weren’t tempted by this ever?

No, not at all.

One of the things that you have done is the Agricultural Infrastructure and Development Cess (AIDC), which has created a stir. Can you tell us about it?

I’ll start with an example. Assume that there is a commodity in which we had put a 12% basic customs duty (BCD). Now, what we have done is bring down the customs duty, say to 7%, and on that, I’ve added, let us say, a 3% AIDC, which eventually means that the consumer, importer or customer is going to pay 10% only. To him, it is an overall reduction in BCD, although now he is paying a BCD and an AIDC. The duty is brought down substantially and by adding the cess, a certain amount is dedicated for agricultural infrastructure. At the end of the day, if anything, this will retain the price, if not bring it down, but it cannot increase the ultimate burden on the importer who is paying BCD. It’s a similar case with petrol and diesel. There is a component in the additional excise duty which the government of India imposes, and that’s meant for the central government. It is on this that we’ve brought the additional excess duty down and added the cess to it. It is not going to increase the fuel price all. If it gets increased because of the oil companies, I wouldn’t know that, because that’s a market-based operation.

What are your collection estimates?

About ₹30,000 crore [annually] is what I’m thinking.

You’ve announced that mandis will be linked to the Agriculture Infrastructure Fund. How much will this help in today’s situation and will it help double farmer’s income?

Each year, we aim to double farmers’ income. Today, farmers are raising questions on the newly passed laws and the Union agriculture minister Narendra Singh Tomar is ready to answer their questions in detail. But every year, we announce schemes to help farmers double their income.

Will the ₹30,000 crore of the agri-cess fund be over and above the infrastructure fund of ₹1 lakh crore?

Yes, the ₹1 lakh crore was already spoken about during the Atmanirbhar announcements.

Is there a target for asset monetisation this year?

I’ve only said that through disinvestment, we’re expecting ₹1.75 lakh crore. It might be difficult in the immediate aftermath of the coronavirus pandemic, for me to put a number because we really don’t know now what the enterprise value will be, or what the market will decide is its net asset value, or how PSUs will [perform] after the pandemic year. Though a lot of it is [based on sale of] land, one difficulty I must admit is that if DIPAM (Department of Investment and Public Asset Management) has got to sell off a piece of land, which is somewhere in Salem or Ballia, they will not get a clear picture of what the market value is sitting in Delhi. Arriving at a net asset value estimation or land value estimation is a complicated process.

It is a good way to generate revenue from assets that are lying idle. But what is the next step to ensure that it gets done?

We are giving ourselves a timebound push within the ministry, but we’ve not declared it. I remember in the July budget of 2019, I had given a big number and due to the market being a bit tepid, I couldn’t even get going with it. I was questioned about that but the fact is that market sentiment also determines how we will succeed in our disinvestment plan.

The number for the LIC IPO has also not been figured out? Will it be brought out in 2021-22?

Not yet. Internally, LIC will have to get their books and systems ready. The IPO will come out in 2021-22 but we’ve not decided on the quantum. I have appointed a set of professionals to look into this.

This would be a significant addition to your revenue, because this LIC number is not part of the disinvestment number.

Yes, quite right.

What is your message for the business community?

It is clear that the government is committed to reform whatever time it takes to achieve this in a parliamentary system. We have said clearly that we will disinvest, not on an as-and-when basis, but by having a clear policy of disinvestment of [certain] public enterprises. It’s important to announce this openly because this is not a knee-jerk policy, but one that has long-term stability. Investors should know what the long-term route is and whether the government will stay on it. And we will have a clear list of which assets we will monetise. Private investors in the country will receive clarity and they will be able to bring foreign partners to participate in this disinvestment.

One of the assumptions we’ve made is 14.4% nominal growth rate but the economic survey assumes a 15.4% nominal growth rate. What is divergence caused by — is it a more moderate inflation regime or do you expect slightly lower growth?

I would put the Chief Economic Advisor’s report, being an academic free thinker, as a bit more flamboyant whereas we in the ministry of finance, naturally and rightly, will have to be [more] reasonable in assessing what we can do.

To privatise banks in a country like India, especially with our history of nationalisation, is a bold move. Do you expect political opposition to the move?

I would want to reason it out. We are not saying that we will not have any public sector banks at all. Public sector banks will continue — they have an important role to play in this country — and will have to be viable. They will need to have the strength of scaling up. We need many more SBIs in this country, and that is why, in the past two years, we’ve done an amalgamation of banks. But, that said, we also have some public sector banks which are just not picking up, and their health is just not improving despite infusion of cash. I won’t get into the details of who they are or the nature of the problem they are suffering from? Is it important to have large, serviceable, well-managed and professionally run banks that are actually serving all those areas that private banks wouldn’t go to, or an x number of public sector banks and that number is sacred?

What is the thought behind the announcement on mega textile parks?

Our capacity to export textiles was quite high at one point. But then, it became very weak for some unknown reasons. Now, to get back to that position, we have announced the textile parks.

Although there has been a sequential recovery across many parameters, there hasn’t really been an increase in employment. There is still a significant number of people who lost their jobs during the pandemic, and are still out of a job. What will help them?

I said during the Atmanirbhar Bharat [announcements] that employers who let go of their employees during the lockdown for whatever reason can take them back and the government for the next two years will pay the Provident Fund. We have also now announced a lot of training programmes in collaboration with the United Arab Emirates and with Japan, so that for the jobs that are available there, our people can be trained on specific skills. We are also trying to work with several other countries so that our manpower gets that training, inclusive of language, to find employment in those countries.