‘We have kept our word on fiscal consolidation': FM Nirmala Sitharaman opens up about Budget 2024

Rahul Kanwal: How confident are you that the employment-linked incentives (ELI) you have offered to industry will trigger net incremental new job creation?

A: Yes, they will. Because even as we are telling them (industry) to benefit from the incentives that we are giving, we are giving monthly EPFO payments [and] one month’s salary up to Rs 15,000 irrespective of the salary for which the person is recruited. And very clearly saying it has to be a new addition to the job. And that new addition will have to be enrolled into the EPFO… Second, the employer is also incentivised in this process, when he brings in new people… who’s a fresher, meaning first-time jobseeker. And the second scheme is you can bring in anybody, but also include the newcomers… And EPFO has unique numbers, so no replication can happen. We are confident that it is possible for us to monitor it.

RK: And your response to the political charge that before the poll results, your government was supposedly in denial about the enormity of the job crisis? Also, some say that a few of these ideas like ELI and the apprenticeship/internship programme are lifted from the Congress’s manifesto…

A: If I say this, it might be too late for you to accept that I’m telling the truth, but it is all in the records... Since 2014, [for] every proposal that went to the cabinet, the PM would say, ‘You’ve given me the justification for the proposal to come to the cabinet. What I want you to give additionally, is to tell me how many direct and indirect jobs will this create?’ And I think by 2016, all of us got into the groove… we had to go back and work out how many jobs [a proposal] would create… Second, for the positions that were lying unfilled in the government… they were filled up every month through rozgar melas (employment fairs) between November 2022 and December 2023. If we didn’t take jobs and the necessity of filling up the posts seriously, why would we do this? If we didn’t think jobs were an important element of the economy, why would our cabinet notes have to have a section talking about what would be the impact on jobs?

And to be told, ‘you’ve copied it from Congress’s manifesto,’ I want to say it’s a very convenient and lazy argument to put forward… For instance, they said they would give apprenticeship as a right. And that they would give Rs 1,000, I think, in their manifesto. But we gave it for people so that they will be there [in the job] for one year, and paid every month by the central government and the company... In the EPFO-linked scheme, we’ve also said that you (employer) take all the incentives, but if you remove the person, you refund the amount.

When we brought in apprenticeship, they said ‘Oh, that’s not a job… you’re only doing apprenticeship. And therefore you’re not creating jobs.’ But you made apprenticeship a right. So, apprenticeship is not a job when we give it, but apprenticeship has to be made a right, per their manifesto. Can there be a [more] hypocritical way of criticising others?

RK: Your supporters seem very upset that you’ve imposed taxes…

A: I want to ask where did I impose tax?

RK: On futures and options (F&O), you have increased taxes…

A: Who are these supporters? The so-called middle class, right? F&O is for the middle class? Please don’t mind me saying. ‘Why can’t the middle class be there?’ Of course they can be there. But F&O goes with risk. I’m not saying middle class shouldn’t go into F&O. And what is it that we’ve done? For options, the increase is even lesser; in futures it has doubled—from 0.0125% it has gone to 0.02%...

Siddharth Zarabi: People say black money will be back after the removal of indexation benefits on long-term capital gains (LTCG) tax for real estate…

A: It’s nice to conflate many things onto this debate. Haven’t we as a country kept saying, ‘Why all this differentiation between the different asset classes? Why can’t it be simple? Why don’t you rationalise it? That’s been one of the very strong arguments… I remember people telling me TCS, TDS… why are there so many rates? And again, for the middle class, I said, if there is TCS, you can carry it forward as a credit if you want into your TDS also… all inputs that have come from the middle class all these years...

RK: Your promise was of continuity and predictability. But for instance, you have increased LTCG tax on equity from 10% to 12.5%. You said in taxation, there’s always some unpredictability. When somebody makes an investment decision, he has some sense of the tax outflow. Now you don’t know where the ball is coming from…

A: The stability versus the simplicity argument. I have announced in the Budget that for the next six months, there will be a committee looking into simplifying direct taxation… There is no scope in the name of stability even to respond to the requirement of making your tax system simple. At some point in time, we’ll have to change it or not, or in the name of stability never change it, even if it is complex? It can’t be that way…. [It is not a perfect example, but] when GST was brought in, rates existed [with] different rates in different states. All officers sat together over several sessions to understand how in some state that had a rate of say 8-11%, what GST rate will be nearest to it. And the thumb rule was we don’t want additional revenue, but the taxpayer should not be paying a higher rate. So, you try to rationalise it by understanding that it shall be revenue neutral. Any movement from one rate to another then was based on that principle. The revenue neutrality principle was broadly used even now... 20% can come down to 12.5; 10% went up to 12.5% for the stocks, with rationalisation on an average over several years, we calculated and took very many different examples. And after that this 12.5% was arrived at. And after the Budget, CBDT has been releasing notes and frequently asked questions on why this rate was decided. It was not with the revenue consideration in my mind. [It was] clearly to simplify and clearly to rationalise.

Sourav Majumdar: Let’s come back to F&O. The SEBI Chairperson recently said it is no longer an investor-related problem, it is becoming a systemic risk. With your Budget, you’ve given a nudge to the investor saying that there is a risk here and you have also attempted to get revenue out of that. Are you worried that this is becoming a bit of a bubble?

A: Well, I strongly believe Sebi is very well equipped to take care of that. They have been very clear that the regulation will only be a soft touch regulation. And before they frame any kind of a rule or a measure to control anything, they would have consultations with stakeholders prior to even drafting their regulations… that should be sufficient. What we’ve done is because of the kind of requests that came, a little nudge… and that’s why the rates are not really all that high... And somebody was telling me, ‘But it hasn’t helped. So why did you have to bring it?’ I said, ‘Why didn’t it help? Look at the way stock market is today.’ So I’m not going by any of these comments. But the Sebi is fully vested to take care of it.

SZ: In the Economic Survey, the Chief Economic Advisor has suggested that food prices be excluded from the calculation of the interest rate in a country like India. Do you think this should be considered?

A: The Economic Survey, although it is from the Department of Economic Affairs, the Chief Economic Advisor prepares it, [and] we maintain an arm’s length from it. So, it is not necessarily the ministry’s voice; it is the CEA’s voice. And on that specific question, I think it is a subject worthy of discussion. It is not as if I can take a call on it straightaway… no one can take a call on it. Because these are issues where a lot more thought has to be given.

SM: One of the plus points of this Budget was the accelerated fiscal deficit target, which you said was 4.9%, when the expectation was a little higher. How much has the RBI dividend this year helped? Since you’ve stuck to the fiscal consolidation path, are you hopeful that the RBI will take a cue when the MPC meets the next time?

A: I wouldn’t be able to answer that. That’s obviously for RBI to take a call. But dividend or no dividend, haven’t we shown our commitment in keeping the glide path that we had promised? It is a word given after Covid-19, when we really couldn’t borrow … with revenues going down badly… fiscal deficit went to 9.5% or something. So, at that time we promised that we shall get it down a certain path, and we are keeping in line with that path. So, I would think, instead of being surprised, you should say, ‘All right, we’ve noticed that you’ve kept your word.’

RK: If we look at capacity utilisation as an aggregate for industry, by and large, going back to 2022, it has been a flat line. How do you hope to address this?

A: I think we also have to understand the background to this. Industry’s capacity is increased keeping very many other considerations. Today within India, there is a reset happening in industry. They are looking at Industry 4.0 seriously. A lot of them are trying to reset their own businesses so that productivity gains can be accrued to them… the uncertainty is external… if there are industries that are export-oriented, they also see what is happening around... Europe’s demand not really picking up, the Red Sea situation... So, there are very many serious considerations. Also, the way in which the yen in Japan has been crashing… I think the global situation for Indian manufacturers should also be considered, other than… the lack of manpower and the skilling of employees… only a few days ago, we heard L&T say that there are 45,000 jobs for which they are not getting the right personnel… So, capacity utilisation is dependent on so many such factors. I can’t say what more Indian industry wants for them to now reach 80% or 90% in terms of capacity utilisation… I would be more worried if it is coming down. Yes, it remaining flat broadly is a factor to be kept in mind. But it’s not coming down is something which we cannot afford to miss.

SZ: Over the past 10 years, a lot of money has been put into agriculture. But if you take a 20-year period, the average growth is 3.5%. Why is agriculture in such distress? What is at the heart of the problem?

A: I wouldn’t be able to expand on what is the heart of the problem in agriculture… But at least broadly, I think there is a lot of fragmentation of landholding… the input costs are fluctuating… despite the government giving subsidy, let us say for fertiliser, for farm loans, there are still concerns because the extreme weather conditions are also taking a toll… shift in the monsoon cycle is also weighing heavily on the minds of the farmers. Further, we do not probably have climate-resilient seed varieties in this country… So, there are a lot of challenges, which with science and technology, [and] overcoming the input cost fluctuation we will have to address. So, it is not just a question of—and I am not undermining its importance—MSP. It is also so many other factors that weigh heavily on farmers.

And I will concede this. I remember in 2015 or 2016, because India had a shortage… in terms of total pulses produced. We said, we’ll procure and make sure the pulses-producing areas increase. The farmers did a splendid job. And we sent a very clear direction to all those procuring agencies that please procure as much as farmers give to you… [but] somewhere something went wrong. And some farmers unfortunately had to be turned back… I remember this example, from Kalaburagi area of Karnataka… where toor dal is grown. Many farmers were unhappy because the procurement didn’t happen as they thought it would. And there were shortcomings. So, the government announced it. But on the ground, if you don’t execute it at state level, with proper mechanism, it does suffer… So, this time we have announced that we will procure and the emphasis is both on dalhan (pulses) and tilhan (crop used to make oil). We would want to support both growers because our imports are going up. And we can’t afford to have Indian consumption relying on products that come from outside. And the imported inflation is also something that adds to the inflation within this country.

SZ: Farmers complain that whenever they get an opportunity to earn more from exports, the government ends up imposing export curbs. Is that fair to our farmers?

A: It’s not. But if I turned to Rahul, he’ll say, ‘Is that fair to the consumer?’ So, I’m caught between the two… So, there is this balance that governments struggle to achieve… most governments have this problem.

RK: Why is the government no longer bullish and aggressive about disinvestment?

A: We have not changed the philosophy... After all, the public sector enterprises policy was part of my Budget speech of 2021. And we continue to be on that [disinvestment] route because that was approved in Parliament... You have to do a lot of preparatory work for each company with each department and prime it and only then can it go into the market. And unique issues need to be sorted out for each one. And the first one that I will ensure is that nothing wrong goes into the deal… [for the] workers who are in it, their work conditions, their safety, their continuity in the job and so on… That is only one unique situation, but several situations that are unique to each problem are reasons why you have to take more time. Other than of course choosing your time to go to the market.

Many of the companies that deal with public money still don’t have professional managerial structures. Governance within them is to run the company well. But they don’t have what is required to be taken to the market. I’m not faulting them. The work culture over the last 70 years has been to run the company, give dividend to the government, and take care of your workers. I’m saying do all that and do something more. And that something more is make your institution have some fundamental things... First, within companies, some don’t even have a mechanism to value them. We had to spend a lot of time to get them (these valuation mechanisms) in place. And that takes time... sometimes it takes a full year. The long and short of it is we are on course; we will be doing it (disinvestment). Between the last year and now, there are quite a few things that have happened. So, we are on course.

SM: The Economic Survey talks about the tripartite compact between the private sector, the centre and the state governments to work together. In light of what happened at the recent NITI Aayog meeting, how optimistic are you that states, especially where the opposition parties are in power, will co-operate?

A: I’m very optimistic. It’s one thing that many of the opposition party-led governments did not come for the NITI Aayog meeting… but I am very confident that aside from all this filibustering, states and the centre will work together on most things. There can always be a situation where there will be friction… But otherwise, I found that working together with states, particularly the officials who come and work for the actual nitty gritty of the whole thing, things do go very well.

@rahulkanwal, @TheSouravM, @szarabi