Economy is showing signs of robust viability: Sitharaman
In an interview with Doordarshan, Union finance minister Nirmala Sitharaman talks about how the Union Budget 2023-24 will spur growth and push India towards self-reliance. Edited excerpts:
This is your fifth full Budget and also the last one of the Narendra Modi government 2.0. How do you summarise the focus of this year’s budget? These five years were not ordinary five years. They witnessed the impact of the Covid pandemic globally. When the whole world is affected, it impacts the economy of every country. In that context, we not only took the steps required to pull the Indian economy out, but also worked to continue reform by taking every challenge as an opportunity. Today when the situation is challenging for everyone, India has emerged a shining star by staying the fastest-growing economy and will continue to stay so next year as well, something that IMF also maintained on Tuesday. We continued taking action without a break and without compromising on reform. We kept taking necessary steps from time to time to ensure that backward classes, Dalits and deprived sections are not burdened. That is how we are at this position. When we talk about today’s budget, the first in the Amrit Kaal, it not only carries foresight but also underlines provisions to uplift every SC, ST, economically weaker sections and OBCs, in line with Prime Minister Modi’s push for reforms for deprived sections.
You have put more money in the hands of employees and the middle class. But, will employers be willing to pay them more? Have you incentivised employers to try and give more money to people? First of all, when you look at the economy, you can see it is showing signs of robust viability. When this happens, especially when you take the example of the services sector with the kind of attrition that the sector is facing, they are moving to greater use of technology. They (industry) are seeking people with such skills. So to pay better is also to pay better for people with the required skills and that’s why the government of India has in this Budget through various ways underlined the need for skilling for industrial revolution 4.0. Today the world is moving towards greater use of Web3. And for that if Industry 4.0 is emerging, employees also will pay more when you have people with adequate and right kind of appropriate skills. So government is pushing it from a different supply side readiness and obviously that will be observed by the industry.
For common people, the striking part in the budget is the tax regime you announced. Can you describe the rationale behind the decision? Whenever there is a discussion on India’s direct taxation, it happens on two subjects: bring down the tax rate, and second, don’t make tax so complicated. For example, at one point you lower the rate while increasing surcharge at another. You also ask to buy insurance to get exemptions. So, if you find the old regime of taxation beneficial, you also say it is complicated. That is why, for so many years, there was a demand to simplify the old regime and several committees also recommended this. The main reason for tax evasion and tax avoidance is that when the rate is high, people try to find other routes. If the rate is low, people often pay. Keeping all these in mind, we brought in the second regime two years ago with low rates.
This time, we cut the rates, increased slabs, and even lowered the tax rate of each slab. We also brought down surcharge, which forms the bulk of tax — it will remain below 39% now, unlike earlier when it used to go to 43%. We took every suggestion in this new system — whether it is to simplify the tax regime, lower the rate or promote compliance. We are making it the default system, which means when you open the computer for filing, this form will appear first. This doesn’t mean it is compulsory. One can switch to the old system if they want. But take the decision carefully that despite so many benefits in this new system, you want to go the old one. Gradually, we are trying to attract people to the new regime from the exemption regime.
In the old regime, people say they had the option for long-term saving after retirement, whether it is PPF, NPS, or other TC exemptions to save some money. These will not be there in the new regime. You say this is more lucrative, but many believe it will not enthuse those planning for long-term investments. There is a need to change this mindset. When the rate is low and you save money, it is your choice where you want to invest it. In the old regime, the rate is high and you end up saving the same amount. This regime is simple. As the tax is low, you can use the saved money to invest or spend on your children. I believe we shouldn’t undermine tax payers. They know how to use their money.
The simplification of taxes is obviously going to increase compliance and also help in formalising the economy because a lot more people are willing to participate. The question is the informal sector, is it merging into the formal sector as a natural course or do you need to draw it in? Yes, we are trying to make sure that people get on to the formal aspect because of the incentives we are giving for digital payments. For instance, one of the announcements that we made today for MSMEs and professionals is that if your 95% operations are formal, inclusive of cheques not necessarily digital, we are still showing higher level of claims. If they are small MSMEs, they take the ECLGS loans, it gives them better and secured credit. They can come in and once they come in, they are formalized. These are ways in which we are formalising.
If you look at the agriculture sector there is the agriculture accelerator fund for agri startups in rural areas as a new focus. There are millets, there is ₹20 lakh agri credit. Does this stand out for youngsters if they are interested in the agriculture sector? Tech savvy or not tech savvy, both have equal opportunity when you look at the possibilities that can emerge from agriculture, fisheries, animal husbandry, and so on. Especially when, through cooperation, we are bringing storage capacities at the panchayat level at a big scale. In all this, technology plays a big role. Those who don’t have technology, or an inclination for it, can still be a part of this scheme of things. They can find logistics, for instance value addition from the stored grain or products. These are areas where immense possibilities lie. There is also a gap. If only the gap can be filled in various different ways; supply networks, value addition to the grains or aggregating the grains that can be produced. That is where the accelerator fund will come in.
Governments world over are spending for their people, you are showing fiscal consolidation. The promise of 6.4% fiscal deficit that you made, you have kept. The next time it will be 5.9% in line with the gliding path you had shown for 2025-26. How is this management happening? What is your signal for global investors? I repeatedly say management of finance. It is not that during the Budget you give this department that much and you give the other department that much too. Fill up the gaps in raising revenue, and bring efficiency. Through technology we can now trace who can pay but isn’t paying. On the other side, when we give money to departments to spend, do they use all of it? If money does not reach the bottom, your goals will not be fulfilled. That is why, as much as the job of the finance ministry is to present the Budget, three times of that is to monitor implementation, plug loopholes, take action where there are repeated mistakes. In the banking sector, as an example, the government announced the emergency credit liquidity guarantee scheme during Covid. The government gave you a guarantee and stood behind you. If banks don’t implement this scheme efficiently, the goal of the scheme is defeated. I believe that every sector in the finance ministry, there is a competition to do top-notch work.
As a corollary, you have continuously raised public investment. How has that happened? Have you made it part of culture that we will raise public investment? It is ₹10 lakh crore, and in that what we are giving the states, ₹1.3 lakh crore is included. The issue is that the money that is spent in public investment, there is greater return. Because of the impact of every rupee, there is a multiplier effect. But those who talk politically of putting money in hands, that does not get such a multiplier. That is why we believe firmly that this is the route that can lift the economy. We are seeing this every year since Covid and we are getting positive results. If we have to grow at the same pace, public expenditure is the only sure way.
You say capex is helping us deal with headwinds; it is going to promote growth potential, job creation. But how much of crowding in of private investment is taking place as a result of this? Between 2021- 2022 and now, there has never been a negative impact on private investment because of increasing public investment in infrastructure. Crowding-in, which we spoke about, has been questioned. But look at the kind of private investment. We brought the corporate tax down, extended the period under which many of them will have to bring in additional capacities or establish new units. All of them together are working now in favour of the private sector to invest. So when you go to the market to borrow, you find many of them are equally able to raise revenue. That is what crowding-in means. People are able to come in. Banks are able to raise revenue. Private sector is able to raise Indian equity. It is not as if money is coming from elsewhere. It is the right combination of policies that I think has enabled crowding in.
If you look at some of the green aspects of the budget, you talk about scrapping old government vehicles, is the government actively adopting e-vehicles that you are promoting in the rest of the country? First of all we want to set an example by saying both the Centre and state governments, if they want, can go ahead with scrapping old vehicles including government promoted ambulances. We think it is important for the government to set an example by scrapping all those vehicles that are 15 years or older and go in for e-vehicles. It gives you better carbon emissions. The policy was announced earlier but we are now coming out with incentives as well.
The budget has focused on ease of living. Going forward, you have given a lot of money to PM Awas Yojana, close to 80,000 crore and 70,000 crore to Jal Jeevan Mission. From an inclusion point of view, will you be able to meet your targets? Yes, absolutely. In the last two years you will have seen so many saturation points in the Awas Yojana. On top of that, the PM aspirational districts programme is being taken to 500 blocks. The Awas Yojana and Jal Jeevan Mission will also reach those blocks. So achieving the targets is not difficult. In the seven priorities, reaching the last mile is a key one.
You have said what India has been able to do in digital payments, you want to achieve in agriculture too. We are in preparations to make an open source platform. What is that? The meaning of open source is that we can add anything we want. This is not an app that you download, or pay a charge. This is the creation of a public utility where the information the farmers want will be available. Where can they get good seeds. What is the health of your soil during cultivation? If you want to go towards organic farming, how do you do that? How to use micro-nutrients? All the information will be there free of charge.
You have simplified a lot of the direct taxes. Is there going to be an increase in direct tax collections substantially? You have a map for your fiscal consolidation but one of the arguments is that too much is reliant on the GST sector to fill up our coffers? That’s not true because this year direct taxes have also shown buoyancy. You are able to see that more income is also being generated through direct taxation. It is not that we rely on GST, which is indirect tax, and think that our coffers are being filled. Pre-GST, where you were paying for household items at 18 or 20%, sometimes even 30-35%, all of them have been brought down. The revenue neutrality was somewhere in the range of 15.5%. It has come down to 11% meaning items have become cheaper. So GST itself should convey the message that even as it is now, you are paying less on household items than prior to the introduction of GST.
All eyes are on India now since we are the G 20 president. The IMF has said we are the bright spot. We are targeting to be the third largest economy in the world. Some people wonder about the race with China? Where do you see India versus China five years down? I would see India becoming atmanirbhar (self-reliant); India producing many things for itself and also for the world. We are growing at pace because of a sustained interest of people and because of a responsive government. I would also think importantly that the stability the government has given because it received a mandate which was such a strong mandate. Also we treat tax matters not with impetuousness but with a level-headed approach, keeping stability and predictability in our tax regime. We will definitely be one of those attractive economies.