We framed this Budget on a larger plank, not based on any one incident: FM

The India-US trade deal, had it come a little earlier, would not have made the Union Budget any different, Finance Minister Nirmala Sitharaman said in a conversation with Asit Ranjan Mishra, Vikas Dhoot, Nivedita Mookerji and A K Bhattacharya on Wednesday afternoon at her Parliament office. Edited excerpts from the interaction that ranged from headline numbers to policy focus, reforms and more: 

What has been the central focus of this Budget? And had the India-US trade deal happened earlier, would the Budget have been different? 

I have always been realistic while making the Budget. So, at no point in time has it been an incident-dependent or one incident-based Budget. For instance, at the time of the pandemic, we didn’t think we were going to anchor it only on Covid. Or, after that, we didn’t think we were going to anchor a Budget only on post-Covid revival. 

So like that, we kept this Budget on a larger plank, rather than on one incident, however serious. To your question on whether the reduction in tariff from a punitive 50 to 18 per cent, coming soon after the Budget, could have influenced me had it happened one day earlier, I would say no, not at all. Even beyond this event, there are uncertainties looming today. 

Could you talk about the central point in the Budget?

 

As the Prime Minister pointed out at the beginning of the session, this is the first Budget of the second quarter of the century, and that the second quarter would include the goal of reaching Viksit Bharat in 2047. So, I have to show the direction towards that for more than 20 years. Then, I also start the new Finance Commission cycle and need to plan for the next five years. This is the first of the five years. From that perspective, it’s a very critical Budget… There was no space for me to be going in one extreme or the other, and therefore the focus of this Budget has been to keep the stable growth going.

 

Do you agree that you have been more conservative in terms of the disconnect between the nominal growth and your actual collections? Could you have gone in for a lower fiscal deficit target for next year?

 

I agree with all that, but a lot of global uncertainties are still around. Having given the income tax and the GST relief (earlier) — both of which I strongly believe will help people to have more money in the hands and enable consumption opportunity — the primary focus should remain growth. I didn't want to be left   with no room for some flexibility in case that’s required. I have reached the destination without failing any one year. Can I now have that little space — that was my thought.

 

So, you are hopeful of giving a positive surprise at the end of the year?

 

No, just for me to have that cushion because you don’t know what’s going to happen globally, as many challenges are still active and alive today. After the recent conversation (referring to the interaction between Prime Minister Narendra Modi and US President Donald Trump),

 

I can probably say the funds, looking at the weathercock, are likely to come back.

 

There was expectation of a comprehensive Customs duty rationalisation. Some steps have been taken but can more be done?

 

I could have done it all during this Budget. But unlike income tax, Customs has so many different dimensions to it, not just the duty, the scanning of goods which come into the country, the diligence which exporters and importers will have to adopt, the health standards and testing labs, electronics and semiconductors (it’s a complex area on its own merit), and we didn't want to hurry. We will give it, maybe even during the treasury amendments. Some of it could also be packaged all together a bit later. But it will happen soon.

 

Do you think private capex will finally kick in? Are there any specific measures that could help?

 

There’s no specific measure. I’ve given the corporate tax reduction already. We made it easy. In income tax also, the slabs have been rationalised already… So I think industry will have to look at ways to participate in the growth story of India.

 

You have promised a lot more on disinvestment… What is the plan?

 

It will go as per the approvals received from the Cabinet. It will happen.

 

Global uncertainties still remain, but the external challenges are less now, after the US deal is done.  As things settle down, is it time to focus more on internal issues?

 

It should settle. But the first announcement (on the deal with the US) is on the punitive tariff rates imposed on us that’s come down to 18 per cent. The joint statement will tell us what the details are.

 

But even otherwise, I don’t think I’ve made the internal issues wait till such a time I address the external. I’m simultaneously working on them as well. So if the external is all sorted out, many things may still remain.

 

In one of your post-Budget interactions, you said you will look at expanding the direct tax base. Can you elaborate please?

 

The Central Board of Direct Taxes has already started a nudge movement (by interacting with assesses as they fill their forms). We are also creating a lot more awareness, saying “You’re better off taking part in this exercise of paying what is due to the country”. It will be a bit of a slow process but we will work on that.

 

In the Part B of your speech, you listed a number of steps that give tax certainty. That’s very good, but there’s also a perception that by changing the capital gains structure of the sovereign gold bonds, it’s a virtual retroactive tax. How do you respond to that?

 

Not at all. And I think it’s not fair... It was very clearly launched with an intention of having people invest in it. At the time of the launch itself, we were clear that it had to be held till maturity. There were two bookends to it — you come into the primary market issue and hold it… It’s natural to assume that the benefit reaches you, but both these bookends have to be met or it would slip off like the book. Another instance is picking up from the secondary market and getting out — in all fairness, you cannot get the benefit, and that’s what we’ve said.

 

Domestic players in the data centre-cloud service space are curious to know whether they are going to get the same tax holiday. Do you think a clarification is required there?

 

If a clarification is required, we will issue it. But I want to give a pointed answer. That is, there is a level-playing field. The domestic investor is not at a disadvantage. Quite a lot of thought has gone into this. We have not put the domestic investor or the domestic operator at inconvenience. There’s no unfair treatment being offered to him, not at all. I’m quite happy to issue point by point narrative to say why this applies to all equally. It applies to all equally.

 

After the US deal has been done, do you think the growth assumptions in the Budget will change?

 

As I said, it depends on the agreement, the details of which will have to come.

 

I’m not saying I’m going to have to change because the agreement has come through. Let me at least see what is there. I repeat that a Budget is not made depending on one or not depending on one (event or development).

 

You have proposed in the Budget that SEZ units would be able to sell in the domestic area because of the whole global uncertainty. Do you think that is still needed even after the US deal?

 

As I said, let it get crystallised. Till then, a one-time, specific measure is there and it will remain there. It’s anyway intended to be a temporary measure... What you are allowed to sell in the domestic area will be in a certain proportion to what you are exporting. You cannot completely forfeit your export obligations and shift everything to domestic. That’s not the aim.

 

On the debt-to-GDP front, you have targeted a 50-basis-point reduction this year. But you want to bring it down to 50 per cent at the end of the 16th Finance Commission period. That would mean in the next four years, you have to reduce it by more than one percentage point each year. Do you think you are back-ending the debt-to-GDP reduction?

 

You could say that, but I’m saying that with a bit of a hesitation, because I do not want that burden to be completely pushed to the rear end… I would like to have some breather later... I will steadily increase it, but not really push it to be back-ended. It might give you that impression now. But as I said, this Budget is taking care of one year, five years, 25, years, so I had to play it.

 

Usually you don’t cut your capex to meet your fiscal deficit. Do you think 2025-26 (FY26) is an exception?

 

No, I had gone through it even before we finalised the Budget numbers. Many departments are yet to give me utilisation certificates. States are sitting over utilisation certificates. I cannot release the money without the utilisation certificates. I’m not pointing fingers at one or two states. Many states have this problem.

 

Economists expect the Budget to give a 0.6 per cent to 0.8 per cent boost to the growth trajectory in the coming year. On the indirect tax assumptions, you have been conservative at a tax buoyancy of 0.2.

 

I don’t want to let down the economy… In any other sector, minor slips are absorbable. The Finance Ministry number is as good as cast in stone. I have to be conscious of that. Otherwise, the credibility that you obtained in the five years with fiscal discipline, and being transparent in Budget — everything will be shown and we are not going to do anything outside of the Budget. These are hard earned, and I have to come up with the number that is not going to fail the confidence in the economy.

 

Is there anything that you are considering to catalyse foreign investment flows into the country?

 

When foreign investment net went out a year, eight months ago, our macroeconomic fundamentals were strong even then, people booked profit and went out. The fundamental macroeconomic indicators were strong then, strong afterwards, and are strong even now, but then for investment to come in, there’s something else. If you take the reaction to the day before yesterday’s phone conversation between the two premiers (referring to the phone call between Prime Minister Narendra Modi and US President Donald Trump on February 2), you can see the weathercock. Look at the big funds… also see the environment now having a different air, freshness, smell and so on. So I expect the flow to come through, because the Chief Economic Advisor was right when he said, “Your macroeconomic fundamentals are right, you expect everything to be fine for the funds to come in, but your rupee is up against a world which is not impressed by any of this.” So I think that change of wind, your headwind becoming a tailwind is probably happening post the phone call.

 

Even otherwise, the Canadian funds, the Norwegian fund, the EFTA funds, were all happy, they were coming in. The chunk that all of us look at is that fund which is waiting for a change in the temperature, flow of wind.

 

Do you think the Securities Transaction Tax (STT) increase on futures and options (F&O) trading would be enough to dampen participation, which is the primary goal, or is more needed both from the finance ministry and the regulators?

 

No. More is needed, perhaps from the regulator. Taxing and taxing after a point doesn’t give you returns. Total prohibition on liquor hasn’t worked in any state. Like that, there’s a limit to what you can do even if you want to deter. So I don’t think there is more to do from the finance ministry. You can only keep telling them it’s dangerous, it’ll cost you more, don’t speculate, but you cannot do it after a point. If a fellow wants to put his hard-earned money and burn his fingers, it’s his choice.

 

It’s not anecdotal. A study said 90 per cent of people who were engaged in F&O trading have lost. So if that’s the case, the government can only do that much, it can’t do anymore.

 

On the US trade deal, one is curious about the back story. Were you expecting it to happen at this moment? What was the latest trigger?

 

I wouldn’t know whether I should say we were expecting that it would happen. No, it wouldn’t be fair on our part to say that we expected it to happen at a particular time or not. It happened, and we welcome it.

 

What’s the thought behind this high-powered committee on Banking? Even in the last Budget you know, you’d announced a committee on financial reforms.

 

This one is more to see, if at a time when we are strong in our banking thanks to several steps that we have taken, I want to be sure that we will do the right things to make banks stronger, not just those existing ones. Do we need new and big banks? Do we need new, big but private sector banks? Do we need more ways of funding growth?

 

There are several questions, all of which are critical for financing the Viksit Bharat pathways — 10 different pathways, one MSME, another is big industry, another is infrastructure. There are so many different ways in which we have all got to converge on to 2047. How do banks engage with all this requirement?

 

Will bank consolidation also be part of the brief of this committee?

 

All that has been approved by the Cabinet, will happen anyway. Over and above that, they have to see.

 

Do you have a timeline in mind for setting the terms of reference and forming the committee?

 

I will come up with it soon, because I am keen to know what I have to do.

 

The Economic Survey referred to running a sprint and marathon race at the same time to meet the Viksit Bharat goals. Is there any clarity on where we should sprint and where it has to be a marathon?

 

No, that is why I have said this budget has a one-year agenda, which you can call the sprint, and the marathon is towards Viksit Bharat, but the five-year (time frame) is there in between as well.

 

I’m also playing around with words when I say this, but the schemes that we’ve come up with for rural revival, cities as economic zones, waterways, you’re looking at both the immediate and the long term. Skilling of youth, AI-driven for better productivity, whether it is for agriculture, whether it is for industry, whether it is for science and technology, opening up of very many more avenues through which such AI infused skilling can happen. So there is a blend of all that in this budget, the short term… setting up critical mineral corridors, that’s long term. You have to prospect, then you have to extract, then refine it to make those which are required for your solar energy, for your hydrogen, for your semiconductors, for your robots. But being dependent for the raw material itself from somewhere else has brought us to this pass that any small decision the other way hits us. So Atmanirbharta on this is not going to be arrived within one year. That’s certainly a marathon. I’ve made a commitment and I will fund it.

 

Do we have enough deposits of rare earths like lithium?

 

I must tell you about the interaction that I had with the finance ministers before the Budget. The state finance ministers said: “We’ve done enough to understand that we’ve got it, but we need to extract it. Would you help us?” So the question of whether the deposits are there is already answered. The question of whether the states will work with you is already answered. So, I see that catalytic change happening sooner, and after that, of course, it's going to have its own gestation period, but those initial glitches have already gotten over, because the states said it to me.

 

But apparently, Kerala has opposed it.

 

They’ve not opposed it. They’ve just said, you’ve not given us anything, forgetting that I’ve also announced their name in the corridor.  But they have got a better devolution…

 

Every year, during those five years (of the Fifteenth Finance Commission cycle), which still has two more months, Prime Minister Modi was accused of not giving enough money to the state. I am not asking or wishing for it. Now that they’ve got it, they're not thanking Prime Minister Modi. Now it’s the Finance Commission which has given it. That is politics.

 

Tamil Nadu CM MK Stalin also made a statement that the Budget does not have much for the state. Do you feel that is unfair?

 

Tamil Nadu is the only state to receive both the defence corridor and the rare-earth corridor. Any other state from anywhere else can accuse me of saying you’ve given it to Tamil Nadu and you’ve not given it to me. Does he even realise the value of it? A high-speed corridor, taking a train to Chennai, connecting it to Bengaluru. Does he even notice it? So somewhere, if your politics thinks that everybody is blind and deaf and mute, you can go on saying whatever you want. Do you think people don’t see it?

 

One thing that is bothering people is the mechanism of ensuring that the states and the central departments spend their money. The shortfalls that you are seeing are very significant in key schemes. Is there an institutional mechanism needed to make sure that the states and the central ministries actually spent the money under, for example, the Jal Jeevan Mission, instead of it just being a disclosure of transparency? You have moved to transparency, but is there any action needed to act on the information that people have now?

 

This doesn’t recognise that there is one other issue: Grassroots-level corruption, which disrupts the last-mile work, cannot be ignored in your enthusiasm and drive to get going to complete the project. Like it was in MGNREGA, in some states, it is the case with the Jal Jeevan mission. The last minute levels of corruption can ruin the intent of the project itself. You may lay the pipe but there is no water in the source from which it has to come. So, in other words, therefore, when you see that people can game a particular well-intended and well-crafted project, you need to correct that. Until I correct that, I can’t just say that people might question that I am not spending the money, and I flush it there. I’ll correct it and give it to you. Haven’t we corrected MGNREGA? Have we thrown the baby with the bathwater... You may not like the name VB-G RAM G, but haven’t I provided ₹95,000 crore for it? Haven’t I also, recognising that the system was being gamed, still because you could question me, given ₹30,000 crore there (MGNREGA) as well. Within one year, over ₹1,20,000 crore for the same intent — in the name of MGNREGA and the VB-G RAM G. We have corrected the system and we have put money. Therefore, that cause gets served. But till then, how much water has flown under the bridge? There were instances of totally gaming the system and CAG came up with the report. The state team and central team went together to those villages where this was happening and the state team could not disprove the point. Then it was clearly laid out that you will give that money back to the system, which is the government system. It has to go to the exchequer, then you get it back for the right claimants. There was cheating at that as well… money was taken from the treasury and put back. You cheated this system and gave that public money to ineligible fellows. When we are saying, retrieve that money and put it back and then take the money again for the eligible ones, you’re taking it from the public exchequer again and then putting it back, and not retrieving it from them. The brazenness with which they are gaming the system… So that has been sorted out now.

 

The reason for un-utilisation in some of these major well-intended schemes are these sorts of things. I can’t repeatedly talk about this publicly but we have to correct it. VB-G RAM G is one classic example of where Prime Minister Modi does not tolerate this kind of gaming of the system. Where money has to go to the people, he has given it to you. He has also given it to those people and said take your bills and go away. But now, the system should be clean.

 

In the Budget, you mentioned about upgrading 200 legacy industrial clusters. Have they been identified, and what is the nature of upgradation that you have in mind?

 

There are several things we have to do there and I’m working with the MSME (Micro, Small and Medium Enterprises) ministry. When I say I have to have manufacturing as one of the pillars which will give me sustained growth, am I looking at only the big industries? No. One side of the coin is through PLI, you look at the scaling up prospects, look at those industries where intense labour engagement happens, those which have export possibility. And then through PLI support also, semiconductors, phone manufacturing, electronics, gems and jewellery, textiles. But the other side of the coin is the matter of fact that 40 per cent of your export happens from MSMEs. That’s why we said we’ll make champions out of the medium-sized industry, the top end of the lower half. Because the lower half is small, you can’t really scale them up. The medium ones — even if they have every possibility to grow, they don’t want to grow because they fear losing out on these MSME benefits. That is why we have changed the norms, you would still be with an MSME, but if you want support from us, in the form of equity support, liquidity support, professional support, we will provide it. But with that said and done, maybe those getting this support may all be new. What happens to the legacy ones, to those MSME units which have been there for 30-40 years now? When you study that problem, you get to know that most of these clusters, whether in Tiruppur, in Surat, in Jalandhar, in any other place, are all bursting at the seams. No space to grow, no policy framework which allows them to grow vertically, or no additional infrastructure or capital infused for machinery upgradation, no capital infused for better technology to be brought in, or training.

 

The higher limits for AIF investments from overseas persons is being seen as a significant reform to boost capital inflows. There’s also a challenge of mobilising the domestic pool of savings, especially from high-net worth individuals who are using the portfolio route to invest abroad and perhaps, crimping the savings available for domestic investments. Does that concern you and how do we create vehicles to bring those savings to domestic ventures and projects?

 

I don’t think there’s one possible answer. I am not encouraging them going out but it doesn’t actually crimp the available investible funds. Going out has some benefits but yes, bringing a portion of that back for investing in India is happening and significantly happening. So I am not saying let it be like that. We will have to attract them… there is also now a tendency for them to set up under the IFSCA. People are coming there because it has its own benefits and nothing stops them from investing in India aside from there, rather than a similar facility elsewhere. So that’s also become one of the ways in which money comes back into India, and from there, they can still get the kind of returns that they want by investing in other destinations. The recent spate of mergers and acquisitions halted somewhat perhaps in October, but reviving again, and also, the increased interest in IPOs — there is a lot of interest in our own investors coming back in search of partners. In between, there was this talk that legacy business houses and their heirs don’t want to continue with that, they are putting it somewhere and earning returns. You can’t blame them, it’s their money. But yet, India wants to have the benefit of more investments, more capacities being built, more jobs being created and more output. So now, what is happening is with the renewed interest in IPOs, many of them are coming for partnering with others. Maybe the priorities of the core sectors that their families have been engaged in, is shifting somehow. And in shifting, they are also looking at partners who have got the expertise. So I can see that happening. In fact, many of the funds, trusts, home offices and others are probably looking for partners in newer sectors in which they want to start afresh.

 

You are hopeful on this front?

 

I see some of it happening already.

 

On the PM Internship scheme, the allocation has gone down… What do you think has gone wrong?

 

Allocation has not gone down. We are doing it for five years and have done some pilots. So the allocation is only proportional to the pilot. Now we are taking a note to the cabinet for the entire project to be launched. So that will be different… Pilots can be more or less, depending on the lessons learnt.

 

What are the learnings from the pilot?

 

The learnings — some of them thought it was too long a course, some wanted more money, some of them wanted to be in a particular sector, but that sector did not make an offer to them.  Some wanted to be out of their state, some others who saw people get employment in the company where they did internship and felt – ‘Oh, I should have taken a call’... and you also had people who had come from districts who felt that language was a barrier. So there are several learnings. Not all of them may be incorporated in the scheme, but some will.

 

The Supreme Court’s judgment on the Tiger Global case. Is there a need to clear the air to ensure it doesn’t become a matter of uncertainty?

 

No, I honour every word of the DTAA, every word of the General Anti Avoidance Rules (GAAR) on tax avoidance. But even for that one occasional case where there is an abuse, I should look the other way, thinking that it might affect the investor mood, may not be right. Where there is an abuse, a legal recourse is there, the judiciary at various levels have looked into it and agreed that there was an abuse, that cannot be interpreted as me violating the DTAA or violating the GAAR norms. abuse, it is my duty to make sure abuse is recognised, meaning noticed and treated legal. I don’t think this particular case you're referring to, has anything more than that.

 

Some people are saying that this was the apex court’s retrospective reading of a law. The law is fine and not retrospective by nature like the Vodafone tax in 2012. This was the law which is prospective but the Supreme Court read it with retrospective effect. So it was a reading of the law which they’re questioning, not the law itself — is a perception.

 

I am not sure the perception is right. When did GAAR come into force? When was the shares bought? When was it sold? When was this actual selling happening? And that residence certificate of somebody from Singapore, and is that Mauritius company all right? Therefore, you had gaps in different parts of this entire process. It’s a case. It’s not that the relationship with the countries involved. It’s that one particular case where there was an abuse, the abuse was established in the reading.

 

So you don’t think it will set a precedent?

 

No. That is why I’m saying it is a case where there was an abuse, the law was read before the court, reread before the court, argued with evidences, and therefore, it said, ‘Yes, this is an abuse of the law. The judgment has not set the precedent in terms of interpreting the law. The law was interpreted and the abuse was called out. That’s all.

 

You have presented eight full Budgets and one interim one. Do you think a different approach is required in Budget making, any kind of innovation, any new thought that you want to bring into the process?

 

No, I should first be open minded about receiving any new thought. But there are two things. There can be lot of openness about it, lot of transparency about the process, I’m not talking about the document. That is why we are engaging with a lot of people, putting it out on websites saying ‘give your inputs’. Even in WhatsApp, if you send a message, we will have a look at it. We’re going to colleges… I invited the Delhi School of Economics students. That is the institution in Delhi specifically for economics, so reputed, you should have a role in budget making. So I make them come every year. There was this youth dialog that Prime Minister Narendra Modi in which a lot of ideas were generated. Some of them were taken by us in the budget. And post the budget, I said I’m not going and sitting and doing interviews. People have heard the budget. That day, I will engage with all students from all over India. We, in fact, brought 33 students from all over India to sit in the Parliament, watch the budget, and post the Budget in the evening, I went and sat with them. That was a refreshing engagement. It was so it is a lot of open process, even as it is.

 

But how much ever I say about openness, transparency in the process, I am repeating, I am committed to transparency, but not on the document… I can’t obviously put Part B out to be transparent. It can lead to even a 24 hour-speculation. That speculation can also be sometimes used. So I am not sure if much can be done about that usual sanctity of holding it closer to your chest till you say it in the Parliament, as of now… unless there is an era where people openly say: “Tax me”.