Estimates of crash in growth due to demonetisation are like crystal-gazing: Nirmala Sitharaman

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Updated: November 24, 2016 10:41 PM

As the opposition steps up attack on the government on demonetisation,commerce and industry minister Nirmala Sitharaman says any likely impact on GDP will be limited to only the third quarter.

nirmalaShe also says India will soon convey its IT industry’s concerns about the American visa system to the new administration once Donald Trump takes over as the US President in January. (Source: PTI)

As the opposition steps up attack on the government on demonetisation, commerce and industry minister Nirmala Sitharaman says any likely impact on GDP will be limited to only the third quarter. Although she admits that labour-intensive sectors have been hit to some extent, she says difficulties in payments to workers will likely be over in 10-15 day. She stresses that the government has been trying its best to ease difficulties faced by people. In an interview to FE’s Banikinkar Pattanayak, the minister also says the government doesn’t have any plan to further ease FDI rules in B2C e-commerce, beyond the market-place model, and shares why more curbs on FDI in tobacco are necessary even though Niti Aayog has opposed the move. She also says India will soon convey its IT industry’s concerns about the American visa system to the new administration once Donald Trump takes over as the US President in January.

Former Prime Minister Manmohan Singh said on Thursday that demonetisation will drive down India’s GDP by at least 2 percentage points. Has the government firmed up any estimate of the impact of such a move on GDP?

I heard the former Prime Minister today. I think it’s too early for anyone to estimate what impact demonetisation will have on GDP. I agree that some of the labour-intensive sectors where many workers are paid in cash (have been impacted). Many of the exporters we met (on Monday) also told me that they somehow managed the cash issue last week but the following week is crucial. Even that day, the impression that exporters gave me was that they were being affected for a week or 10 days and that things would get back to normalcy soon.

For example, in a labour-intensive sector like tea plantation in Assam, we have allowed district magistrates to take payments by cheques from the estate managers or owners and make the cash available to workers. Subsequently, West Bengal and Kerala have also asked us for this facility. Not just this, the government is addressing on a daily basis the issue of payment to workers getting affected. We have very swiftly moved to address the issue following the announcement (of demonetisation).
New currency notes have also been supplied to rural areas in particular, along with old smaller-denomination notes. ATM facilities are being restored in rural areas. And much against the earlier expectations, the speed at which ATMs are being re-calibrated is clearly seen on the ground.

Therefore, I don’t think the difficulty related to payments to workers will protract beyond these 10-15 days. So even if there is going to be some impact on growth, it won’t last beyond this quarter. And I am saying this even without being conservative in my assessment of the situation.

Therefore, any comment that there will be a 2-3% fall in GDP is very far-fetched. Unless you are crystal gazing, it’s not possible to reach any such figure now.

After rising for two straight months through October, will exports contract again in November due to demonetisation?

I don’t have any such fear about export prospects following demonetisation. There has been a depreciation of the rupee as well (the rupee hit an all-time low of 68.86 on Thursday). So we have to take into account the (beneficial) impact of the rupee depreciation on exports as well, which a lot of people are talking about. Fluctuation in currencies is becoming very normal the world over and our exporters are seized of this matter. I am sure they might have factored in all such things when they assess export prospects.
Could demonetisation have been handled better?

On a decision of this scale, when 86% of the total value of currency is demonetised, it will definitely have an impact on society. Now there is time until December 30 to deposit high-denomination notes in banks and with the RBI up to the end of March. But secrecy had to be maintained, else some people would have found ways to whitewash their money. This is not to suggest that all those who have had cash are black-money holders. But as and when there is some problem in the ground, as reported by media or the
affected people themselves, the finance ministry has swung to action to ease the pressure on the common man. At the same time, efforts were also made to make up for the demonetised currency with the new notes so that the transactions for economic activity are not hampered. But the fact that smaller denomination notes were not adequately available at that point of time certainly caused some disruptions and these have been acknowledged by every one of us. So with the options we had, we planned it in such a way that the impact would be minimal. But still, because of the paucity of smaller-denomination notes, there was a problem at the ground level. But that’s now slowly petering out.

The commerce ministry has supported DIPP’s proposal for further curbs on FDI in the tobacco sector, including in licensing for franchise, trademark, brand name and management contract. The NIti Aayog had certain reservations on such a proposal. Have you sorted out the differences now that the proposal is expected to go the Cabinet?

First of all, we have ratified the WHO agreement (on tobacco control), so we have to work towards cutting down on production. Also, the Tobacco Board (which is under the administrative control of the commerce ministry) deals with just FCV tobacco, which is less than 20% of the country’s total tobacco production. So when you are talking about foreign investments in the tobacco sector, it goes against our WHO commitment. Therefore the question that what will happen to tobacco farmers in case the foreign investment in the sector is choked will have to be responded to with a sense of responsibility. We also have to encourage the farmers to shift from tobacco to some other crop. And this alternate crop should fetch him equal or more returns. We are also concerned about the hazardous impact of smoking and chewing tobacco on human health. So keeping in mind the larger issue of public health and the country’s commitment to the WHO, I think the question of curbs on FDI in tobacco has to be viewed in different ways than FDI in other sectors.

But the commerce ministry wants FDI to continue in tobacco procurement for the time being

Procurement of tobacco through auctions happens in a transparent manner and is tracked by the Tobacco Board as well. So to the very limited extent of foreign money coming in for the time being for procurement is a different thing. The intention is not to put farmers into immediate trouble until an alternate arrangement is made for them.

Is there any plan to relax FDI rules in B2C e-commerce, beyond the market-place model?

No. At the moment, there is no such plan.

Do you intend to relax the domestic sourcing rule for FDI in single-brand retailing from the current 30%?

No, there is nothing of this sort that we are contemplating at this moment.

Has Apple Inc approached you after the new FDI rules are notified? Is the company seeking more concessions from the government to set up its stores in India?

No. And no such proposal for concession (by Apple) has come to me.

US President-elect Donlad Trump has said his country will pull out of the mega trade deal, Trans-Pacific Partnership (TPP). Will it change the course of the Regional Comprehensive Economic Partnership (RCEP) of 16 nations, including India and China, aimed at countering the TPP?

The TPP is different from the RCEP. Although seven of the 16 countries in the RCEP negotiations are also TPP members, and some of them may want to bring some features akin to those of TPP’s to the RCEP, these are different agreements. I don’t see any development relating to the TPP having much bearing on the course of the RCEP. The RCEP will continue and we are committed to concluding it at the earliest.

Do you see a more protectionist US under Donald Trump, especially towards the Indian IT industry?

We really don’t know what his (Trump’s) positions will be after he formally takes over on January 20. He is saying quite a few things now. He has said quite a lot of things earlier. It may not be right on my part to speculate what will happen on or after January 20th when he takes over as the US president of the US formally. But it will certainly be our efforts to have interactions with his team at the earliest so that India‘s concerns are adequately addressed.

Effective today, the UK has tightened visa rules by raising the salary threshold required for intra-company transfer to 30,000 pounds a year from the earlier 20,800 pounds. There are fears that rules on student visas will be tightened further? How are you planning to take it up with them?

We have broadened our engagement with the UK after the new Prime Minister Theresa May took over and it will continue. We are clear that the matters related to visas, including for students, will be raised with the UK at every possible opportunity.

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