Finance Minister Nirmala Sitharaman speaks in an interview with OPEN Magazine's Rajeev Deshpande and PR Ramesh on how the government’s fiscal responsibility and commitment to welfare and growth will strike a chord with the electorate.

Why was a comparison between the economic performances of the UPA and NDA governments considered necessary through a White Paper? It appears that the government is prepared to approach the electorate on the basis of its economic policies, something governments and parties have not always done.

You would agree the economy today is very much in contrast with what we inherited in 2014. On that I don’t think there can be a debate. Within the comparison offered, you may say “on this there is a ‘but’ and also on that…” You can pick on one or two items. But even such examples need to be placed in the context of conditions prevailing at any point of time. I will elaborate on this later. So, overall the economy is quite different. Second, even on fundamental things, slogans have been raised to attract people’s attention. Here there is no need for slogans. Actual work has been done and it has reached the ground level. We thought having [completed] 10 years and the economy having reached a stage where you are confident that in the next few years we will reach the third rank, we stand in sharp contrast to what was inherited, which was the ‘fragile five’. That is why, if we had done it earlier, and the prime minister said we would not as it would hurt everyone’s confidence—citizens, investors, and observers of the Indian economy—it would not have been the right time. But now that actions have been taken across the board, we are in a position to explain how restoration has happened in each sector and growth has happened. That is why, to put all facts in one place, a White Paper was needed. We need to recall the impact of various scams [in UPA’s tenure] that collectively had such a negative impact.

Is there an effort to explain that capital has been used more efficiently, in terms of transparency and investment? Is this to be seen in the profitability of PSUs?

If you just talk of PSUs and banks, they were as good as being flat on the ground because any substance they had was scraped out. Banks had no more money to lend and were not sure if the money they had lent would come back. Their staff had lost confidence that they could take a call or a decision without fear that CBI or CVC would come after them. Or a CAG report would have a line or a paragraph. There were problems like evergreening and not so credible clients who were given loans. A neutral and professional evaluation of collaterals did not happen. If there was a phone call, the loan had to be given. So, we had to restore the confidence of bankers and bank officials. I remember that even as late as 2019, I had to sit with the banks and get ED, CVC and CBI on one platform, to assure banks that genuine commercial decisions would not be questioned. Even in the case of any malpractice, it would be the bank’s committee which would first assess and if it could settle matters, then it was okay. But if the bank felt more scrutiny was needed, the matter would be sent to RBI. The process of getting everyone to believe that things could run professionally took time. I remember the extra sittings and discussions with bankers to make sure they dealt with all non-performing assets (NPAs) and, meanwhile, in 2021 the bad bank, the National Asset Reconstruction Company (NARC) was formed and gradually all negative accounts were moved out; NPAs were moved out. So many layers of work had to be done on which today you are able to see banks doing well.

A part of the problem, going by the White Paper, was the fudging of numbers.

That is right. The one thing the prime minister said is that Budgets should speak for themselves. What is said in the Budget should explain the finances on its own. There is no point in its being said, “Well, you have said all this but something is not adding up.” Thus, transparency in Budget, which, once implemented, discourages any “extra budgetary operations” the next year. Things such as making your own PSU to borrow for you, not showing that in your Budget accounts—all such unsavoury or far from ideal practices had to be done away with. So, we made an announcement in 2021 that there should not be any borrowing that is kept outside the Budget. All borrowings of the government will be there. The true picture of the fiscal deficit should be evident. We have sincerely done so. Earlier, not for one year or two, but for several years this [extra-budgetary] operation happened as though this was normal. There would be one Budget and there would be something outside it. It kept happening.

Are such practices an issue when considering the demands made by states like Tamil Nadu, Karnataka, and Kerala? You will recall the words of [Congress leader] Adhir Ranjan Chowdhury when he spoke in Lok Sabha on behalf of Karnataka. He said “till six months”, and he used this word, he said, “all was hunky-dory but now there are a lot of problems.” I think this was a Freudian slip. Till the BJP government was in office, there was no problem with resources. The state had a surplus Budget. Also, it was a state that received so much FDI. Now to say they are under severe stress is purely because without calculating where the state’s finances are, without taking into account commitments like certain fixed capital expenditures, you have made promises, and more than one. I remember during the state election many of us pointed out that promises Congress had made would cost ₹60,000 crore. Where is that kind of money? Now this is what they are also citing. Earlier, the deputy chief minister said ₹52,000 crore or thereabouts. Then the economic advisor said ₹58,000 crore. The promises made are beyond the state’s means.

The case made by Kerala is that its borrowing has been curbed. But is it the case that the funds are being sought to pay bills?

There is one thing that cannot be questioned. No state can be treated differently. Positively or negatively, favourably or unfavourably. It is just not possible. Every month, the break-up of what is to be devolved is done as a matter of routine. Even if I come into it, and say “Stop the payment for state A or B,” it cannot work. The system is all laid out. Intervention is not possible because the tax collection is seen by everyone and that is broken down according to a formula. As per the formula, it goes to everyone. There is no room for discretion.

Is there also a matter of compliance or utilisation certificates?

There are two or three issues. But I am not saying this is a problem for such a state or another. There are clearly problems that states are not able to deal with. But as far as central projects are concerned, you give a proposal and take the money. But let me remind you of the Fourteenth Finance Commission when devolution was decided, the YV Reddy commission. What you give to the states was increased. When this was set at 42%, what no one wanted to speak about was that the commission also said that the amount devolved was increased but you might want to cut down on Central schemes. We have not done [closed] even one. So, those who are saying we are not getting the 41% (after Jammu and Kashmir becoming a Union territory), will they recall that the commission had said you could cut down on the schemes? After all, how are Central schemes to be funded if 41% is going to states? Had we cut down, the same people would have raised a “halla (hue and cry)”. Therefore, they [the opposition] do not want to quote everything that was said by the finance commission. Then, over and above the devolution there are things that the finance commission had not said. After Covid, we wanted states to recover quickly and we started giving money for capital expenditure, interest-free for 50 years. The only condition being a timeline for expending the amount. We will give the first half, provide the utilisation certificate and take the next half. Was that a recommendation of the finance commission? Where is that coming from? I have to give [the states] 41%, no scheme has been cut; and if we are giving funds, should they not be spent on capital expenditure? I spend on capital expenditure and so do you. Would all of this be possible if, legally, I did not have a cess on something? Cesses are not banned. Constitutionally, the Central government has the right to levy cess or surcharge. That money is coming to you—[by way of] schools, education, hospitals, border roads and villages. There is defence, where the budget is burgeoning because we need our capabilities to be strengthened. Where does that come from? Can it all be done in the 58% that comes to the Centre? There is no way you can grudge the cess and say “suppose cess and surcharge are put into the devolvable amount, we will get more.” So how do I fund defence? We see migrant workers travelling across the country? What is the train ticket fare? The ordinary class ticket has not been increased even once in the last 10 years. Where do I get the money to subsidise that? Where is the money to upgrade the Railways? Often in the past there have only been promises of new trains and connections, and these just remained proposals. Can I ask a state that since a railway line is passing through, give the money? This whole argument that “my state gives this much, give it back” is not correct. Beyond the finance commission recommendations so many things reach the states.

There were significant challenges by way of the Covid pandemic, the Ukraine war and disruptions in the Red Sea. There was no reason to think the economy would be where it is in the natural course of events. What were the critical decisions that sustained the economy?

There is the development and funding of vaccines. First, to get the vaccine right and, for imported or patented vaccines, scale up production. It was a major task to produce sufficient number of vaccines and ensure distribution. For any such operation we had to keep spending. Borrow yes, and keep spending. There are people who ask this question—about debt to GDP. But despite all the crises, our ratio is not beyond 84% (2021-22). Many advanced economies have crossed 100%. When people refer to the World Bank or some other organisation saying that world debt is unmanageable, please… our case is not that. If you quote an extreme event the IMF referred to, saying manage it [debt] or it will reach a certain level, it as if it has already been reached. But it was not a fait accompli. They [international institutions] said that if debt is not managed, it may reach that kind of level. That they would say for every economy. Recall that immediately after Covid, the price of fertiliser hit the roof. A bag of urea that costs around ₹300 was costing ₹2,800. Did we shift that burden to the farmer? We bore it all. Did we distribute that burden onto the states? No. I want to remind those who discuss debt to GDP: Where did the debt occur? Why did it occur? If you still say we are not managing debt, then you are not seized of the matter.

We are meeting on a day when some farm unions have raised old and new demands and are agitating on the streets. The White Paper refers to agriculture, but what is the thinking for the future of agriculture?

There are specific programmes, schemes and initiatives in rural areas, all aimed at the farmer, the family as a whole, including children. The measures address the rural environment, mechanisation, a regular disbursal of income, however much the amount, credit from banks that is subsidised, interest subvention for loans, options for renewable energy, reclassifying certain trees and bushes so that they are out of the Forest Act, attention to animal husbandry by planning for veterinary doctors in blocks, cold storage chains and subsidies by way of Kisan Credit Cards. Initiatives have also been taken to link farmers to markets while subsidies on urea remain. In fact, now there is nano urea, where a half-litre bottle can suffice. This protects the land too. Farmers are linked to agri-markets online and exports are allowed except when there is not enough stock in the country and a temporary halt is in place. The prime minister has been clear that the challenges a small farmer faces should be addressed. Small farmer. In rural areas, where defining land boundaries can be difficult, the use of drone-based technology is helping farmers get the patta (ownership rights).

In this context, there is the demand for minimum support price (MSP) for various crops.

On this, compare the quantum procured and the price given. There are significant increases as compared to earlier years. As many as 22 crops are listed as eligible for MSP. There is bajra and other millets are covered. I said in Parliament that Haryana has given MSP for bajra. There was a Congress government in Rajasthan. Farmers from Rajasthan carried their bajra to Haryana. Because this is a Centre-state issue, the states are sometimes not doing some things. The subject is both with the Centre and the state.

The thought in the interim Budget, read along with BJP manifestos for the previous round of state elections, outlines the view that there will be welfare measures but no profligate spending. Are you confident that you can convince voters with this thinking?

Strictly speaking, the fiscal deficit doesn’t make any difference to the voter. The interim Budget, the view that the vote account did not have anything big to offer… well, I could have retained what was promised in terms of the fiscal deficit number. If I had said this year it is 5.9%, everyone would have agreed we had stuck to the glide path given in 2021- 22, post-Covid. But we bettered that. It has become 5.8% this year. Next year, if I touch 5.2%, I would still be fine. But I have said 5.1%. This shows our commitment that we will continue to be prudent. We will honour our promises and commitments.

Is your confidence to do with better quality of spending?

I can see it in the last three years. After Covid, we gave a small amount to the states. It was lapped up. The amount was increased and we can see that states can deliver. They take the money and deliver on quality projects. We have given the flexibility, we know that you cannot think of a project and complete it in 12 months. So, the funds can be used for a project that is near completion. But that project has to be finished. States have performed very well. So this year also it is ₹1.3 lakh crore. We want economic recovery and asset building to gain strength.

Do land and labour reforms need to be taken up looking ahead?

Here, too, states have a role. Nothing is being pushed down the throat, but there are areas where all sectors can benefit.

The question of private consumption and rate of private investment has been discussed for some time now. What is your assessment?

You need to look at the range of investment coming in. Look at the aerospace industry. Components are being made in collaboration with companies in Hyderabad, Coimbatore, Bengaluru, etc. Investment is going into areas you normally do not think of when you consider industry. We tend to think of heavy industry. All that is there, but investment is going to new areas. Look at the way India’s renewables are growing. That cannot happen without investment. The case is the same with electric vehicles, battery storage, and rare earths. That is why when people tell you are doing too much by way of capex and as a result you are borrowing too much, and this is crowding out [finance], actually, my borrowing calendar, about which there was a brief reference in the Budget, is also going to be rationalised. That is why you saw the bond market reacting the next day. The listings that are happening, for example Morgan Stanley… and talks are on for other listings also. There are avenues for better, affordable finance.

How would you see the debate on employment and the expectations of younger people?

Some parties wanted to play up employment as an issue, to give the impression that hopelessness is prevailing. Actually, youngsters are seeing letters being given to them on a monthly basis. Private sector recruitment is not depressed. The Employees’ Provident Fund Organisation (EPFO), a government-maintained portal which records registered companies, is every month recording increases that are not in hundreds but lakhs. The Ministry of Corporate Affairs (MCA) portal shows more than a lakh-and-a-half new companies.

Turning to the case of Paytm and RBI’s adverse orders, is it the case that while startups have done well, they need to be more mindful of compliance and corporate governance?

I certainly would not say that. One company’s problem should not lead us to think that maybe all of them are going through something similar. Largely, they are very conscious because the startup and the innovator go about their job. The others who are running the company are conscious about due diligence. I would not say that others [companies] will have to sit up and plan better. Not at all. On the contrary, startups are new-age; they have seen startups across the world. They often say simplify [procedures] further and that is because they want to comply, not to avoid. In the process of compliance, they may say something is burdensome. They would not say that they did not intend to comply. They are young and new-age, they are not easy on compliance. They are doing fine.

While many discussions on schemes and funds touch on federalism, we have the GST Council where states and the Centre come together and achieve results. How do you see the dichotomy between public or political articulation and the functioning of the council?

In the GST Council, everything is discussed threadbare. I am sure the finance teams and the ministers know the process is conducted democratically. They cannot go outside and say something that is very different. They know the options before every minister in the council are laid bare. There are instances when states have asked the council to be decisive on some points even when it might be felt that an issue could be set aside taking into consideration the views of a state or two. They all know the need to generate revenue. That kind of conversation happens because you have to keep in mind the divergences between states and within states. You don’t want to burden any citizen. You don’t want to burden anybody with raised incidence of tax but, at the same time, the council realises the need to raise revenue.

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