Finance Minister Nirmala Sitharaman is brimming with confidence about the election results. In this interview with FE, she terms the Congress stand on wealth redistribution as insidious, and says the need is not to make the wealthier poor, but to make the poor wealthier.
What’s your assessment of the elections so far?
I strongly believe we will come back with a good majority. There is no reason to think the mood has changed just because the opposition wants it to be changed. I don’t know from where this negative campaign has started that BJP may not get adequate numbers by saying we didn’t perform well in the first two phases. The Home Minister has clearly said that the number of seats (for BJP) will be 370-plus and you will get to know that by 12.30 pm on the counting day. The opposition is only trying to mislead people.
Businessmen may have been puzzled by the PM’s statement that the Adanis and Ambanis sent truckloads of money to the Congress party.
I want Congress to explain why it has suddenly lost hate for Ambanis and Adanis. In 2019, till the very last day, they kept talking about Rafael (corruption), giving something away to Ambanis; PM was lying, etc. That fervour, zest and aggression with which industry was being labelled corrupt, the allegations of cronyism, is suddenly missing. It was their original agenda after all. The PM is pointing that out by asking why, what happened. Therefore, the question arises have they got something from Adanis and Ambanis? Otherwise, why suddenly be silent? I think the PM asked that in that spirit.
As FM, what is your message to big businesses on this issue?
I don’t need to add anything to what the PM has said. The showcasing of India’s businesses and entrepreneurship as people who loot has been a completely disastrous narrative for the Congress. If it had to retract from the allegation, there was a graceful way of doing this. But Congress leaders think that by suddenly silencing themselves, people will no longer notice their hatred for business and entrepreneurship. I think the PM has called that out. Modi as chief minister or PM has always laid trust in India’s entrepreneurship — small, medium and big. It is the policy of Modi to treat our entrepreneurs with respect and allow them to perform. The creation of wealth will lead to more jobs and income going into the hands of people.
What is your stand on Congress highlighting the inequality and wealth redistribution narrative?
This attempt itself is insidious, wrong and malicious. Instead of making the poor wealthier, if Congress’s solution is to make wealthier poor, it’s just unjust. Wealth creators also provide jobs, opportunities, and resources to the government. Sensationalising it, drawing people’s attention only because they are desperate to win and come to power, shows they care nothing for people.
People in that party who are at the decision-making level keep saying much more than what is in their manifesto. They said so in full graphic detail how it is going to happen; what will be the result of the process, etc. When we ask questions, they say have we said this in our manifesto? When it comes to actually convincing the voters, they would say Congress will do an X-ray of society to see who has got what. The Congress’ attempt is to assess through a census where wealth lies and redistribute it.
The intent of the Congress is objectionable. Wealth creation is not wrong. There are legitimate instruments like tax. But, taking away someone else’s money and giving it to many others, however noble the intent may be, it is wrong. These are not the days of Robin Hood; these are not the days when you can rob Peter to pay Paul. It doesn’t work that way. We are in a Parliamentary legislative democracy where every act of the government has to be discussed and approved. As an afterthought, Congress said, it had removed the inheritance tax (in 1985). On that suspicions have been raised. Why did you do it at that time? Is it because Indira Gandhi’s assets were moving to her grandchildren? Congress may have answers.
Are we going to see an aggressive agenda on privatisation going forward?
Aggression need not be in your face. We have to be realistic to see how the last 4-5 years have been. Even if I am aggressive enough to push something, I would be called out saying it is stupid to bring something if the environment of disinvestment is not the best. So, disinvestment will have to see discretion also. We should have the right to choose the right time. We can’t be unthinking administrators. We are saying minimum presence of government in businesses. To arrive at minimum presence, I would have to see how many of them have to be disinvested, how many can be amalgamated to create a scalable and large unit and in some cases, the strategic core has to be retained. Recent privatisations have resulted in the creation of more jobs (in Air India for example).
Have you done a review of the 15% tax rate for new manufacturing firms? Has it worked?
It has worked. But, we need to look at it much more carefully to what extent new businesses have come in and capacity has been increased. The offer of a low tax regime for new firms expired in March. A new call may need to be taken in the Budget in July whether we want to extend it further. The lower tax rate for new manufacturing firms was announced just before Covid-19. After the Covid impact, industries took another year to recover from the pandemic. To be fair, I think many of them lost the opportunity. The advantage the cut in tax rate gave was sucked out because of the Covid-like situation. So we will take a carefully considered decision.
What is the government’s stand on the RBI’s draft project financing guidelines? Project developers are talking about a likely increase in the cost of capital.
I hope there will be a vibrant discussion on the draft. All voices need to be heard before taking such a decision, whenever it is going to happen. We need to have an optimal blend of a regulated atmosphere but that which is promotional, that which is encouraging and which is going to incentivise growth.
There is a concern over regulatory overreach in some cases. What’s your view?
Sometimes, even after regulations are arrived at, it might still be important for us to keep our ear close to the ground. Only then, we will be able to finetune regulations. It can’t be fixated. Soft touch always results in better response from those who are to be regulated. I think regulators in India are doing a very professional job. Periodically, it is also good for them to go out and seek views. The consultations, before firming up regulations, are a fantastic exercise and I understand from industry, and mutual funds that they welcome that initiative by the Securities and Exchange Board of India. More should happen that way. Some of the concerns can always be expressed in very many different ways.
Do you think the new income tax regime needs to be sweetened a bit to bring the remaining taxpayers into the fold?
I don’t know if it is due to a lack of sweetening, they remain where they are. The old tax regime existed with exemptions added year after year. To wipe it all off from the old regime and give some kind of sweetener in the new tax regime will never really be satisfactory. Each one of them has been tailored differently. So, shifting will happen when taxpayers find it not adequately rewarding to remain in the older system. I would rather have the transition happening with people understanding how simple the new regime is. Doing away with exemptions in the old regime may cause a lot of disruptions, and I am not sure I should give a fait accompli to taxpayers. They should have that option. There should not be a compulsion for the remaining taxpayers in the old regime to move to the second alternative till such time they find it rewarding.
Banks have not had a good experience with the IBC as recoveries have been very low. Do you want to encourage a pre-IBC kind of resolution mechanism?
The issue related to the Insolvency and Bankruptcy Code (IBC) and the feeling of let-down, is more because of those circumstances which led to IBC not galloping. There have been issues about delays in appointments to the National Company Law Tribunal (NCLT), the National Company Law Appellate Tribunal (NCLAT) and frivolous litigation. So, it is more about getting that ecosystem right to make it more efficient, leading to timely resolutions. In getting the right kind of resolution professionals, it was found that the pool of available retired judges was small. Now these issues are being addressed. By March this year, most positions were filled. We are now addressing every litigation which comes through the NCLT process with fervour and making sure that it’s not the IBC which has the problem. If the process is being gamed by a few people, we will address that.
How do you see the cancellation of Tesla CEO Elon Musk’s visit to India and his almost immediate visit to China?
India is pitting itself for the strength that it has. I wouldn’t think that any investor’s decision should be framed like is he coming to India or is he going to China. In the EV sector, India is also building extraordinary capacities. Everything takes its own time. We will work on policies that will work for Indians as well as others. It is for India’s sake, we want investments to come in. It is in this frame, that we look at the decisions taken, let’s say by Elon Musk.
Gross FDI numbers have declined for the first time in recent years. Why do you think this has happened? What can the government do to make India more attractive?
Global uncertainties are growing. The challenge for India and other emerging markets is mounting outside. Not just wars or relationships in the multi-polar world, more also because of currency fluctuations and synchronised movement of the central banks. India’s central bank takes calls itself in the Indian context. But, most Western central banks synchronise actions. As a result, investible funds and their movements are very severely influenced.
Today opportunities are absolutely clear, yet, uncertainties are caused by the interest rates, inflation, the US Fed’s decision, or even the talk which has now begun of possible stagflation in some countries. So, there are multiple uncertainties. With the speculation (on likely conflict) about Taiwan and, the South China Sea, you see the fluctuation in gold prices. The central banks are buying gold. The uncertainties about the currency and the fluctuations in the exchange rate are the thermometer, which shows the temperature. All this definitely will have an impact on the flow of funds. We are looking into this very seriously.
Are you unhappy with the private sector capex? Why isn’t it gathering momentum?
If you look at some sectors, you will find them wanting. But there are sectors where they moved aggressively such as renewables. In new areas like battery storage, charging stations and green ammonia, we are having investments which are mostly driven by domestic investors.
How will you supercharge India’s manufacturing sector?
A lot of effort is required. We need to have a lot more dialogue with industry, more from the point of view of what they need. Let them tell us if they need more policy, legislative and fiscal support. It was ironic to hear from some domain experts and economists that India should give up on manufacturing attempts. It is not a good thing to ignore manufacturing or build the service sector so much that you forget manufacturing. We will have to support agriculture, restore and bring newer energy into manufacturing and keep supporting services.
Inflation has moderated to near the mid-point of the target range. Is it time to bring down the cost of funds which industry has been asking for?
A lot more pulse of the economy needs to be felt. An understanding is required that inflation control is not going to happen just through monetary policy-making. There is more to inflation control through the fiscal domain. Monetary policy cannot any longer tell us that it is for inflation’s sake I am remaining where I am. It has to have a broader look at the economy. An element of inflation also triggers growth, you cannot ignore that. Today, monetary policies have greater challenges when you look at exchange rate fluctuations. The dollar is posing more questions than answers today as a global currency. The shift that many countries are doing away from the dollar, is also a major issue, which monetary policy experts will have to study.
Will the government look at giving a guaranteed pension under NPS?
I will wait for the (finance secretary-led) committee report on the National Pension System (NPS) and for the report to be completely analysed. In preparing the report, extensive consultations have been held. Therefore, the report may speak in so many different voices, some of whom can be conflicting. So, the report is what will lead us to say what decision we will take. It has to be a considered, well thought through report providing us the raw material. I won’t hasten to add something yet.
Are we expecting aggressive reforms in Modi 3.0?
Reforms are something in which the BJP and PM Modi inherently believe. We would want to deliver on that. Had it not been for Covid and had it not been post Covid emphasis on recovery first, many other reforms could have happened. Even during the Covid, many reform announcements were made and we followed up on them. Removal of many archaic laws continues to happen even now, decriminalisation under Companies Act provisions happened then and are happening now. So, none of the reform activity is ever going to be stopped.
The BJP is not fighting this election by offering freebies. Is it a conscious attempt to under-promise, but deliver more?
The BJP manifesto lays out a very ambitious picture of what India has to do in the immediate next few years and also in the medium term to make India a developed nation by 2047. Within the next few years, India will be the third-largest economy. We have emphasised that our attention will go towards the frontier sectors such as space, renewable energy and rare earths as well as building capacity within industries for a transition towards greater use of AI and making governance more transparent by using technology. We are not letting go of schemes which empower the poor.