All eyes are now on the second tranche of stimulus measures from the government. Finance Minister Nirmala Sitharaman tells Indivjal Dhasmana & Shyamal Majumdar that the government is willing to spend but is yet to take a call on the timing and quantum. She does not agree with the allegations that the relation between the Centre and states has deteriorated during the second stint of the Narendra Modi government. She also rebuts criticism of the government over farm and FCRA Bills, recently passed by Parliament. While reiterating that the government is against retrospective amendments, she says a call is yet to be taken whether to challenge the Vodafone verdict or not. Edited excerpts:
Whenever there is crisis, India has taken big decisions like during the economic crisis in 1991. Critics say the government has missed the bus this time...
Absolutely not. We could have easily opted for providing some succour and not done anything (after the Covid shock), but we went in for quite a few critical reforms. Prime Minister Narendra Modi stated several times that we shall not let this challenge go away without converting it into an opportunity to undertake systemic reforms. And hasn’t that been reiterated in action? Parliament has passed labour codes, farm Bills, and certain banking sector reforms have happened. Also, the reform-driven assistance to states were announced such as in providing digitised ration cards. By doing this at this time, you’re not losing out on the opportunity.
One of your biggest reforms — farm Bills — is being criticised because there is speculation that the minimum support price (MSP) system will ultimately go away, and small farmers will not get fair prices from big corporate houses?
If that is the plank on which the Opposition is going to the streets to have violent protests, I condemn it. Speculation on MSP is what was giving them enough ammunition to even question what has been passed in Parliament. They should have actually come to the table and said these things during discussions and stakeholder consultations.
Even at the time of passing the ordinances, none of these apprehensions came up. The first question that all of us, including several Opposition parties, kept putting in our manifestos was that the farmer is the only producer today who does not have choice on whom to sell, where to sell, and at what prices.
We have empowered them in such a way that there is a system through which they can bargain for better prices, and avoid middlemen.
The FCRA Bill passed by Parliament has become quite controversial. Civil society organisations are saying that the government is strangulating it. Even Amnesty International has decided to wind up its operations in India. Do you agree with the criticism over the Bill?
What does this Bill do? It says you are welcome to receive funds, but you have to do just one thing — let the funds that come from abroad, come to State Bank of India, let’s say its branch in Parliament street. We are not expecting you to come to Delhi to open this account. You can digitally transfer the funds. It does one thing that you and the government knows where this money is, and to whom it’s going. Nobody is stopping it. I think some major reports have said that only 50 per cent of the funds received is accounted for and nobody knows where the remaining is going. Does it help India’s national security?
Amnesty International is a separate issue. I think they were given permission under FCRA in 2000, but the permit was withdrawn in 2009 when Modi was not the PM. Now you have become a company and showed funds that you received as foreign direct investment. So, there is this questioning and telling them that you cannot do this. There is no witch-hunt here. This government has nothing against civil society... Do you know there are more NGOs than schools in our country? Amnesty has to understand the norms. I am sorry to hear that Amnesty is building a narrative that the government is witch-hunting.
Relations between the Centre and states have strained due to many developments including the possibility of voting in the GST Council over compensation to states. Do you agree?
I don’t know on what basis you say that. Whether it is the pandemic or whether it is any of the major issues, the PM himself has been engaging with the states on a regular basis. Now, if you take the GST-related issues, everything has been laid on the table in the GST Council. Nothing related to the GST is being done outside of the Council. There’s a lot of talk with states. That doesn’t have to be perceived as strained relations between the Centre and the states.
Do you see voting happening in the upcoming GST Council meeting?
I have no idea. I will be talking to them definitely.
The RBI had to postpone its monetary policy committee (MPC) meeting for the first time as the government could not appoint its nominees. Was it not a mess?
Yes, the RBI had to postpone the MPC meeting but there was no mess. We will announce some names. Yes, we couldn’t announce in time. But that’s without any prejudice or malice. There was no intention not to announce it before. We just couldn’t. I’m sure we’ll be announcing soon, hopefully within a couple of days.
Coming to the economy, spending can be revived with fiscal support. But the government has not been able to do so. What is your position on this?
The government has done fiscal support, to whatever extent it can. Of course, people have every right to think whether that was adequate or whether it wasn’t. As regards any further help or stimulus, I’ve kept my options open.
Give us your assessment of the economy during the six months since the lockdown. And, going forward, will it be more difficult due to the uncertainty?
It has been a big challenge. I don’t think in India’s history, post-Independence, there has been a challenge of this scope and scale. Therefore, you can’t compare it with anything before. We are in the midst of it even now, and are still talking about what it could be in the future.
The impact on the economy in the first quarter is there for everyone to see. There is no denying that it was an intense impact. And, even as we are talking, at the end of the second quarter there’s still only patchy revival happening and patchy revivals are very difficult to document in terms of measurability. So, we’ll have to see how it goes.
Do you still believe that we are going to see a V-shaped recovery as the finance ministry had said in its latest monthly report?
I am not getting into any of these alphabets.
Many economists and agencies have raised their projections for the rate of gross domestic product contraction in FY21 and most of them pegged it at double digits. Do you agree with them?
We have not yet made any assessments.
The main concern is that the government is just not willing to spend…
I am not sure that is right. Willing to spend is different from when to spend and how much to spend. The government is listening to so many people, listening to literally everyone who’s been contacting and giving us inputs. Of course, we will have to time what we want to do.
Can we expect anything before Diwali?
I may not be able to say it now.
How do you assess the verdict given by the Permanent Court of Arbitration at Hague in favour of Vodafone. Will the government challenge it?
We’ve not taken a call on whether we want to challenge it.
But how do you see the order?
We are studying that verdict. Amending an act and making it retrospective is something that PM Modi and then finance minister (Arun Jaitley) have voiced against since 2014.
How do you respond to criticisms against increased protectionism through Customs duty hikes?
First of all, I would want to dispel this interpretation that atmanirbharta or the duties that we have been bringing in or Customs-based restrictions that are being put in are protectionist in nature. You know the rules of origin are becoming a bit of an issue. You’re being used as a ground for dumping goods, which probably you can produce yourself. We try to impose anti-dumping duty to stop these, but these are getting routed through free-trade agreements. Simple day-to-day items are also now getting flooded into the country. Even agarbattis (incense sticks), Ganesh moortis (idols) are getting flooded into the country. So, can we not stop them? Then, there are units that produce some of the goods, which are raw material for intermediary, but because of predatory pricing or because of better marketing by others, we stopped buying them from domestic units. I assume the standards are comparable. Where these are not comparable, I’m not worried. I’m not going to touch them.
What is the finance ministry’s stand on moratorium on interest on loans given by banks? What will it tell the Supreme Court in the next hearing, and what did the Rajiv Mehrishi Committee say in its report?
The committee was appointed because we wanted to understand the issue very clearly. On the one hand, you have the prudential norms for banks, and on the other, Covid-19 has come in as the unforeseen pandemic. It is affecting very many small borrowers. Everyone was worried how to ask these very borrowers to pay interest and also interest on interest during the lockdown. We’ve gone into the committee’s report. We are at a very high stage of seeing what we can do about that report. That is why we have asked for a bit of time.
Do you think there should be a cut-off below which small borrowers could be ring-fenced from paying interest on interest?
I don’t want to say anything at this stage except that we are very clearly understanding this matter with a sense of sympathy and assessing the ground situation. We will make our position clear in the court.
Banks are saying where will we get money from if there is moratorium on interest. Then, the government will have to provide money…
That is right. This affects the entire core banking business. So, there is a point beyond which we cannot go.
How will the Bilateral Netting of Qualified Financial Contracts Bill passed in Parliament help banks?
Banks are setting aside capital on the basis of gross amount of transaction. But after this Bill is passed, banks will have to keep the capital only on net transactions, making more money available to them for onward lending.
Has the Centre transferred the task of heavy lifting to the RBI?
I don’t agree with it at all. I am glad what I am doing is not seen. What is important now is to address the issues. Whether I am seen as addressing the issues is a different aspect. I would love to be seen as doing it also. But I’m sorry if it’s not seen.
Markets want the finance minister to be seen as well…
What is important is if there is a difference being made on the ground. It may be adequate or it may not be adequate. What RBI does in terms of liquidity management, OMOs, keeping a watch on yields is absolutely its job, and it has to do it. I’m glad it is doing it. And I’m actually grateful that the RBI is not confining itself just to monitoring inflation. But it’s not for me to say that look, as opposed to that I am doing this. We are doing it. And I’m sure you’re watching that.
On reforms announced, the only thing pending is your public enterprise policy. You had said last time when we met that we will do it soon… Six-seven months have passed since then…
I know it has taken unexpectedly long time because every ministry wanted to give their inputs. We did one round, again there was a second round for fine-tuning it. But, I now honestly expect that it should be going to the Cabinet soon. Whether banks will be included in the strategic list will depend on the Cabinet.
The Comptroller and Auditor General of India (CAG) has criticised the Centre for using the compensation cess collections for other purposes?
Not at all. What had happened was the collected money goes to the consolidated fund of India and then comes to the compensation fund and then gets dispersed to states. Once it went there, it wasn’t transferred into the fund. As a result, we had a couple of months of difficulty. And then, after I came, one of the first things I did was to get that out of the consolidated fund and put it into the fund and then be able to distribute it to states. That is why I could clear last year’s compensation when the it was just about Rs 95,000 crore and we had given out Rs 1.6 trillion to the states.
When you announced the Atmanirbhar Bharat package you said the government will generally not resort to export ban on agricultural produce. But you imposed it on onions a few weeks back. It could not bring down the prices. Do you think that export ban on farm produce is a futile policy?
Yes, and no. Yes, because it has proved ineffective. But if you don’t do it, farmers feel we don’t know what is going on – though consumers are probably paying more, we don’t seem to get the reward. Consumers feel if we don’t do it, prices are going to shoot up even further. So, these are the steps taken to address immediately several factors.
At the CII meeting, you said there is merit to review the GST rates on two-wheelers. Will you be taking that proposal to the GST Council?
One of the participants in that meeting said two-wheelers cannot be considered demerit goods to warrant 28 per cent tax. I agreed with that. But, we have to leave it to the wisdom of the Council.
What about the similar demand on cars?
It is also left to the wisdom of the Council. In the previous Council meetings, even when we wanted to correct the inverted duty structure issue, picked up three-four items, they (states) in-principle agreed with us but did not want to correct it at this point of time because in some items it might lead to increase in rates.
CAG also observed the income-tax department is making high-pitched demands after searches that are not sustained at the appeal levels. Is there any mechanism being worked to address this?
I suppose the faceless system is going to address this. The assessee are also providing a pre-filled form. The assesse even at that stage can question it.
What would be your broad message for those hit hard by the coronavirus-induced lockdown and our readers?
I would like to convey the message to your readers that the prime minister himself is directly seized of the situation on the ground. He periodically reviews the situation on the ground and how it is moving forward, taking inputs from economists, business leaders, chambers of commerce. You can rest assured that the economy and economy-related issues are constantly on the prime minister's mind and we as a group are continuously engaging with him to see what interventions to make and when. The motive is very clear -- to make sure that the revival is fair and include everybody. We have always designed and carried out interventions which are equally available to similarly placed people. That will continue to be the guiding principle for us.
What about sectors like restaurants, which are the most affected? They think they are suddenly left with no budget at all. Can we expect a sector-specific package?
I don't know. As I said, we are still working in different ways. All inputs have been taken on board. Let us see how it works out.
How do you assess the performance of banks after mergers?
I am asked questions about the effectiveness of the Insolvency and Bankruptcy Code (IBC). I am asked about the effectiveness of merging banks. IBC has not completed three years. So has the merger. It has not completed even one full year. And that one year after the merger has been trying for all of us. The very same banks which have been merged are out there in the field, exposing their staff to Covid, but reaching out to the customers through their bank correspondents and branches to implement all the schemes that we have announced in the Atmanirbhar Bharat package. Although I broached the matter once, I did not have the heart to ask them about their merger-related matters.
Opposition alleged that the Income Tax (amendment) Bill passed by the Parliament gives income tax relief to PM CARES Fund, but not to CM relief funds. Do you think there is an anomaly in this regard?
In 2013, when the Companies Act was amended, there was a provision that not only the PM National Relief Fund but other funds will also benefit from relief given to the corporate social responsibility (CSR). In February 2014, with just a couple of months to go for Lok Sabha elections, an amendment was brought in the Companies Act which denied CM's Relief fund the CSR relief. Who was the prime minister in 2013? Certainly not Narendra Modi.
Is the National Democratic Alliance (NDA) falling apart? Akali Dal President Sukhbir Badal alleged that no meeting of the group has taken place for a long time. The party has left NDA, Shiv Sena had quit it earlier.
Others are there (in NDA). I don't think there is any weakening of the NDA. There can always be members who feel that there are reasons to leave NDA because of a particular cause. I will not comment on that. The matter of fact is they should remember that even after getting 303 seats in the last Lok Sabha elections, the prime minister did not say that it is a BJP government. He never excluded any one. It was an NDA government in 2014, it is an NDA government in 2019. The prime minister has never undermined or ignored any ally.
How do you see the chances of your alliance in the upcoming assembly elections in Bihar, given the plight of migrants?
I think Bihar is very good for NDA. We will win hands down. The prime minister has always paid attention to the eastern parts of India, be it Bihar, be it Odisha, Jharkhand, the northeast and ensured that they get good attention from the Centre.