With the schemes you’ve announced, the big focus of this budget seems to have been on jobs. Do you see a substantive start being made on this front?
Yes, absolutely. I want to cite how the implementation of the ECLGS (Emergency Credit Line Guarantee Scheme), which was announced during Covid, where the first principle was that every MSME (micro, small and medium enterprise) is eligible and only ones that refuse will not get it. Therefore, banks were supposed to approach every MSME rather than to say who is eligible or not. We were very clear in giving the instructions post which it was also clear for us to follow up. We will closely monitor these (jobs) programmes.
Will the implementation of these schemes have extensive industry engagement?
We’ve already had engagement in designing these schemes. And it is only because the industry has indicated that it is implementable that we have gone ahead with it. After the passage of the budget in parliament, we will have industry engagement, but now to implement it.
The fiscal consolidation is greater than expected. Going by the political economy logic, it’s counterintuitive, given key state elections coming up. What was your thinking here?
The glide path was also given by us in 2021 for fiscal deficit till 2026. Therefore, it was for me to honour it. Naturally, demands may grow and we will have to attend to them because they are also important. But, even as we adjust and attend to those demands, that word we gave post-Covid will have to be honoured.
One of the thoughts on the fiscal consolidation framework is the transition to debt going ahead. What kind of levels will we be looking at?
The destination is clear under the FRBM (Fiscal Responsibility and Budget Management) Act that the fiscal deficit should come down. We want to do it in a meaningful way, in a predictable way, not in a quick-fix way. If your approach is to keep your debt-to-GDP ratio healthy, don’t borrow to service your existing stock of debt and don’t borrow in such a way that the stock of debt also increases and servicing of that debt also increases. So, if we go through that route, eventually the rate at which your stock grows will come down and debt stock will either remain the same or come down in a substantial way.
One of the things that is slightly thankless about the budget exercise is that the benefits of fiscal consolidation are somewhat long term, very critical, but somewhat unseen as well, and people tend to focus on more immediate measures and reactions tend to be based on that…
Our macroeconomic fundamentals have to be steadily primed to reach good health. India is a growing economy and its perception by others is critical for many reasons-for people to be optimistic about the country’s growth, to be sure that there is no hanky panky and that various aspects are being studied and handled.Let us say an individual taxpayer may think, how does it (fiscal consolidation) matter to me? I need my today’s life to be better. I agree with that, but for lives to be better also, the overall economy should run healthily. When the perception about the Indian economy was fragile five, did all of us feel very comfortable saying our future is going to be bright? Yes, every citizen’s life should be better off and that is why, for instance, middle-class income-tax rates were brought down. When we said ₹10 lakh concessional loans for your children to go for higher education-that was given to the middle class. Similarly for houses, affordable houses, we are giving interest subvention. For the poor, I gave PM Garib Kalyan Anna Yojana. But as a finance minister, it doesn’t make sense to just sit and watch that these two steps are done. No, is it not the responsibility of the government to be sure that the taxpayers money go where they need to go? Equally be sure that where evasion is happening, I should have a system that really says no evasion.
So, I want these points to be highlighted to say it’s not unthinkingly that we only talk about fiscal deficit. If I go on borrowing only to serve my commitments at some stage I will end up borrowing only to serve my borrowed amounts. Am I doing good? Is that borrowing being done for clearing the current day debt or leaving it for the future generations?
I know being the finance minister is not the best job because I am the first punching bag, but I’m quite willing to say there’s no malafide against any particular class of people.
Has this budget done enough to give the Reserve Bank of India (RBI) and monetary policy comfort on inflation and do you think rates can now start coming down?
I keep doing my bit to manage the fiscal side of inflation. The government is constantly looking at supply side measures, even if it is to import perishable goods, which have actually grown in this country. Farmers are doing an immense service by increasing productivity and new acreages and making sure there are linkages to the consumer end and so on. But with all that said, extreme weather events, unpredictable floods and rains, and seasonal vegetables go through a cycle, when summer and winter crops are doing well but then there is a gap between the two. That period is stressful when you don’t have enough to reach the market. So, to address the supply side constraints, we’ve spoken in this budget about horticulture, growing vegetables and perishables closer to where a large population lives. We will make sure cultivation happens closer to dense population areas. We’re also saying that we need high-yielding variety and climate-resistant seeds. That’s why 109 climate-resistant crop varieties are being brought in.
Under the MSME section, BARC (Bhabha Atomic Research Centre) has come up with an irradiation technology for vegetables and perishables. This is India’s own technology. We would be setting up and also encouraging MSMEs to set up irradiation centres. This will help with longer shelf life, which will also help farmers get better prices as they will be able to store perishable commodities. We have taken measures to ensure supply side inflationary pressures can be addressed. Monetary policy has its own measures.
In the China+1 supply chain shift, Vietnam and other countries seem to have benefited more. What does this budget do to draw foreign investment?
I don’t think we can conclude that it has not worked for us. There are advantages that Vietnam has had since some time and being contiguous to Chinese territory can also be one advantage that they had over us. But, one example of telephone manufacturing is one classic case of where the government pursued it: we were able to attract manufacturing. It took some time to get the entire ecosystem. Today we’ve got it all. So, I am not sure that we can quickly conclude that China+1 has not worked for India. But, equally, India is Aatmanirbhar (self-reliant). The principle that we’ll have to do it for ourselves to be self-sufficient is something I need to emphasise.
You removed angel tax but there are pending cases. What about those?
The revenue secretary said Wednesday we will try to sort it out. My approach would be to see how best we can sort this out. Because it can’t be that we’ve removed a tax but those litigations are going to hang fire. That cannot be a fair treatment. We will have to work out something.
Can you explain the reasoning behind removing the tax because one year ago the government actually expanded it to include foreign investment. What has changed?
Two years ago, we tried removing hurdles for the startups. One year ago, we said startups will not be included at all. So, every year since 2016, when startups have been given such impetus by this government, we’ve tried removing many hindrances that startups were facing and this was one of them. But the fear persisted that this could be one of the trigger points for income-tax to take action. We thought there are no more ways in which we can remove this suspicion from the minds of people. Equally, we were confident that the PMLA (Prevention of Money Laundering Act) and the black money Act are adequate to sort this out, so we’ve just removed it
The argument previously was that there’s no legitimate way to distinguish between a startup that had legitimately gained in value and someone possibly funnelling money through the system. What has changed in the ability to make that distinction?
What has changed is our attempt to remove those elements which were the pain points. We tried doing it. But now there is no other way in which you can make that law, that particular section, doubt-free. The very presence of that section was good enough for people to have fear. Our intention is to remove it. Then how do you deal with black money? We had quite a big discussion on it. The provisions of PMLA and Black Money Act if invoked rightly are more than sufficient and you don’t need this section in the IT Act.
The withdrawal of indexation benefits on property and gold has drawn criticism. Do you see this as missing the larger picture?
Yes, definitely. After my budget presentation, the CBDT (Central Board of Direct Taxes) has been putting out clarifications to explain that this decision hasn’t been taken just like that. An exhaustive exercise to analyse different cases was undertaken before the decision was arrived at. It was not an off-the-cuff decision. If you want simplification-not in some you want indexation some others you do not want. Here also without any exemptions, without ifs and buts, we have come up with a 12.5% figure as a fair rate of taxation.
The measures you’ve taken now in tweaking the capital gains structure, were they intended to influence bank deposits?
No. When we wanted to influence bank deposits two years ago, I had raised the incentives. If I wanted to do that, I would’ve done it directly. We wanted to simplify and rationalise the whole process to treat different asset classes similarly.
There’s a lot of discussion about slowing deposit growth. Is there a fundamental shift in intermediation that is happening in the financial market?
Deposits in this country, particularly the current account and savings account (CASA), are abundant in the eastern area where there are not many credit options available for the bank to lend. Whereas in western and southern India, banks end up almost exhausting what CASA they have within the prudential norms and go to the market to borrow and then keep lending. Overall, the earlier approach that banks need to mobilise deposits has come down over the decades. That was the one core thing that banks did-mobilise deposits, lend, and in the process, earn. That is all there is to banking. Today, banks do many more things as well, which is good. I am not saying that they should not, but they have to go back to that core essential activity. I have had two meetings about one and half years ago with all bank chiefs, highlighting the need for them to prioritise deposit mobilisation. I still hold on to this principle that banks need to focus on their core business, which is to mobilise deposits, lend money. Nothing stops them from doing anything else, but this is core.
Previously there was no competition so they did not have to focus on this.
Not only this, previously the portfolio of services that a bank could provide were rather limited-foreign exchange, lending for long term-which was not their business. Their business was only short and medium-term lending, long-term lending was what development institutions were supposed to do, not commercial banks. Commercial banks-whether public or private-core function is banking deposit mobilisation and lending. Long-term lending actually resulted in asset-liability mismatch. The leg of wanting to collect more is still waiting for their attention.
Asset monetisation, privatisation and divestment received less attention in this budget speech. What was the thinking behind this?
The disinvestment is guided by the 2021 budget statement where we said all sectors of activities now will be available for the private sector as well. There is no one sector that is entirely reserved only for the public sector. That policy was part of the Finance Bill 2021 and has cabinet’s approval. I abide by it. The fact remains that I have to prime the institutions to such an extent that they’re ready to be listed on the market. So, it does take time.
What about privatisation of public sector banks?
The 2021 budget and Finance Bill explicitly states that I shall allow the private sector to come into every area. No sector is reserved exclusively for the public sector. In the case of banks, I did mention where I have to do the amalgamations to make them scale up, and where they are good to run on their own steam or where I have to see if I can find buyers.
On asset monetisation, there was a very strong thrust on it a few years back. Progress on it seems to be tardy.
It can be better.
The Economic Survey has spoken about allowing foreign direct investment (FDI) from China?
There is nothing before me. There are some discussions in the parts of the government if we can allow certain experts, technocrats who need to come for installation of machinery, for solar-related equipment. So those discussions are happening in some part of the government about visa rules.
How can India be a more attractive FDI destination?
On FDI and making India more attractive for foreign investments, our government has continuously taken steps every year in the last few years. Sectorally, we raised to 26% to 49% then 74% in some and then put many sectors on the automatic route. In FDI, it has been a progressive move towards flexible and easy flow. The same principle guides each sector.
What is the aim of the comprehensive review of the Income Tax Act?
It’s aiming to simplify. It will be a comprehensive and meaningful exercise of reviewing both the language and the policy.
Does this budget do enough to raise income levels in rural India?
I would think yes, to the extent that I can ease people’s savings, I can facilitate them in the sense, by rationalising many rates with which they are dealing, whether the GST Council, which is going to look at rate rationalisation for daily purchase and daily use, commodities, goods. And, also where the government itself is coming forward to say I will invest in proper common public goods, which will bring in better business for you. Today the reach of the digital economy, even to the farthest point in our country has actually made it possible for people to reach such markets, which they wouldn’t have imagined even within the state.
Has that not been one of the powerful instruments through which people’s purchasing power in rural areas has been given a good shot in the arm. And, how did that come about?
Public spending in infrastructure, digital infrastructure and public spending and taking it that far. These are cumulative ways in which brick after brick we have built and taken instruments for the real income of people in far-flung areas to go up.
You’ve spoken about next-gen reforms and getting the states along. But even some of the BJP states have not been very forthcoming…
Keep pushing. Nothing works with one request. I can only say would you want to do this? This will do better for you. Eventually, your state, the state will benefit. They are seeing states which are benefiting from having adopted these kinds of reforms so that healthy competition is coming in. But the Centre can only go on incentivising it and nudging them to do it.
Back on pre-budget discussions with the Prime Minister-was there any kind of direction from him for the government?
We have effectively subsumed the vote on account into this (budget). So essentially, carrying that forward for the rest of the eight months. Then adding on things-which are requests coming from states. There is no directional change. Reforms continue the way they have continued, capex importance continues, Awas Yojana continues, Garib Kalyan Anna Yojana continues. There is no directional change. So there is no new direction to give but of course, the demands of the two states were also taken on board to study what is and where it is all possible, it is through the Andhra Pradesh Reorganization Act. This government or any other government being here, alliance or no alliance, will have to attend to them and 10 years we have been doing that.