(This story originally appeared in on May 31, 2021)
Battling crises has become second nature for finance minister Nirmala Sitharaman. If it was the economic slowdown in 2019 when she took charge, now the Covid pandemic that hit India soon after in 2020 poses near-, medium- and long-term challenges.
In an interview with TOI’s Sidhartha, Surojit Gupta and Rajeev Deshpande, the FM made it clear that funds will not be a problem either for healthcare or meeting other requirements of the economy, while maintaining that it was impossible to anticipate the speed and intensity with which the second wave hit the country. Excerpts:
How has the second wave affected GST collections?
It will certainly be better than what we used to get in October-November, but with some states under lockdown — and the e-way bills are indicating that — there could be some reduction. I want to maintain April’s level (of Rs 1.4 lakh crore). But I don’t see this dip as being something that will continue in the next few months. Last month was particularly bad, now we are already seeing that it is improving.
For the full year the revenue secretary said the compensation shortfall would be around Rs 1.5 lakh crore. States are suggesting a higher number…
Even last year there were calculations and calculations. There was also this thing about why you would want to differentiate between the protected revenue, based on (the promised) 14% growth, and the actual reduction in collections, resulting in a larger gap because of Covid. Debates will happen and I am very keen on hearing them. Even on Friday (when the GST Council met), I sat through it and heard everybody. The formula for compensation borrowing has been in place since last year. We will take it from there. This year itself if I get better revenues, last year’s dues, which have not been paid, can be paid. That need not be a borrowing (to that extent). There is also this concern that after July 2022, once the cess collection stops, are we going to fall off the cliff because we won’t have anything to collect or share? For that, we will have a separate session.
A group of ministers has been set up to examine the issue of rates on items such as vaccines, drugs, oxygen-related equipment needed to fight Covid. There were two suggestions from states, one was zero duty and the other one was zero-rating. What are the reasons to not take them up?
Not taking it up is not anybody’s position. The GST Council consists of states and the Centre. The chairman happens to be the finance minister of the country. The voting rights of the Centre and the states are all agreed on. We are not a collection of people divided into two groups. We are not adversaries. That approach worries me. In 2019, when I took charge, in the first few meetings I was constantly reminded that the spirit of every decision here is consensus and that is what I am striving to keep. We should be able to have open and free discussions. There was a discussion on zero rates and we heard both voices. A decision on zero rating is not within the Council’s hands. The Council can decide, but it requires amendment to the law. The states will have to pass ordinances before their assemblies meet. Therefore, some ministers like (West Bengal FM) Dr Amit Mitra suggested that, instead of that, we keep it as 0.1 or 0.01. Let the group of ministers decide.
GST will complete four years. When will the next set of steps on rationalisation be taken?
That was mentioned by one or two members on Friday. Last year, I had said rationalisation of rates and correction of inverted duty structure will be needed, but we will have to choose an appropriate time. It was felt that this may not be the time to do it although it is on everybody’s mind.
There are things such as life-saving medicines and concentrators which you only need in an emergency. Is there a need to get them into a lower slab?
The WHO’s protocol is also evolving. You have A, B, C drugs today. But as we move along, B is dropped and D is added. Automatically, going by that rule, I need to exempt D, but I will have to bring back B (restore rates). The Council will have to take a call on how you offer concessions while keeping the dynamic nature of the situation in mind.
In the longer-term is there a need to have medicines, healthcare items like concentrators, testing kits, etc, in the lowest bracket?
What we have today under GST is what we imported from the pre-GST era. When we see the pandemic, we all think we need to give with a large heart. On Friday, one of the comments was (on being) heartless. Is the GST Council heartless? I am part of it today, somebody else was there earlier. Lifesaving drugs were required even then (before Covid), were they (the members) heartless? When you sit there (in the Council), you are sitting there representing your people. The rates today are what I have inherited based on the decisions of the Council (to go for revenue-neutral rates). If you want a change, we will discuss. That is the only way.
Is the GST Council becoming a political platform since the Opposition-ruled states seem to distance themselves and suggest that they were not part of the exercise? How do you ensure policymaking against this backdrop?
You will have to keep trying. I can’t have it the way I want even if I feel mine is a very noble thought. To the credit of the Council, in spite of the politicisation you are referring to, people listen, talk, discuss, raise their concerns and freely discuss. Every member finance minister feels that they can speak openly. On Friday, for the first time, there was coverage on some TV channels even as some of the finance ministers spoke. It did upset me. There are no secrets being discussed but it will lead to a situation where people are going to keep quiet and free discussion may not happen. After the meetings, finance ministers go out and speak to the press, just as I brief reporters. But if there is a running commentary going on — it will not help. I am glad Dr Amit Mitra agreed with me.
What is the assessment in the finance ministry about the impact of the second wave on the economy? There is also this criticism that a large stimulus is not being unveiled by the government…
I don’t know who said that. We are just in May, even the first quarter is not over. The Budget, which is designed for a Covid-affected economy, will have to go down to the people. We are not even taking that on board, and we have started talking about where is the big deal stimulus? The Budget itself is designed keeping necessity (for a stimulus). Many of the schemes which were announced during Atmanirbhar Bharat are still being used. For example, the Emergency Credit Line Guarantee Scheme (ECLGS) still has money in it. We opened it up for other sectors and that can still be expanded. The Swamih Fund has started with 135 projects all over the country to provide last-mile funding. It will help people who are paying rent and EMI and is also a stimulus in a way because cement, steel and labour will benefit. So, there are quite a few Atmanirbhar announcements which are active. Setting up wellness centres in rural areas, agricultural infrastructure and so on. Last year, we increased the budget for MGNREGA when there was demand. If necessary, I will give more but there is not that much demand, meaning the kind of increase that we saw last year is not there. Post-corona, when labour is returning, it is negotiating based on the skills acquired. So, there are things happening and that is why I said that we have not made a final call on what is the impact of the second wave yet on the economy.
Does it make sense to wait and then assess the impact because until a few weeks ago people were more worried about lives than livelihoods?
We are continuing the process of assessing, but it is going to be drastically different from one week to the other. Every week, the inputs are going to be fairly different.
Some sectors have been hit particularly hard — tourism, hospitality, etc. Do you see any room for doing something for these sectors?
I tried in the pre-Budget time. We had extensive consultations but couldn’t bring a formulation which could work. In fact even during the final days we met hoteliers but we couldn’t arrive at a formulation. However, we did open up the ECLGS for smaller hoteliers. I fully recognise that hotels, tourism, hospitality and all the contact-based industries have suffered.
What is the feedback? Is there a little more distress because in sectors such as MSMEs the recovery was just about starting at the time of the second wave?
It’s too early for me to comment. I am not in a position to gather comprehensive feedback, we are getting some inputs. It’s too early to get a comprehensive picture to reach a conclusion.
The way the virus is behaving, will we have to adapt to these partial lockdowns in various parts of the country?
That is why it was the right approach that the PM has been underlining, that a local containment zone approach, a micro containment approach makes complete sense because the local area and the local authorities would be in a position to assess better.
Will you need more allocation for health this year?
I am going to have a review next week. People should start spending on the ground. After that if they need more, I am willing to give. But not even two months of the financial year are complete yet.
You have also set aside Rs 35,000 crore for vaccination in the Budget. But assessments suggest you may need to double that…
We know the manufacturing capacity of the two Indian vaccines manufacturers. I have given them money up to July in advance. While giving that I have not even asked for any guarantees. We made that exception to the rule. I have to pay, but which government pays all that on April 1? As you use, so we give. That’s so with MGNREGA, education, health, social budget. Let them supply. We are also looking at imports, a lot of things are happening.
How do you respond to the Opposition’s charge that the government did not order adequate number of vaccines and criticism of the vaccination strategy?
I quite welcome the opposition party talking about vaccine policy, whether we got it right, whether we got it wrong, everything. When they speak, they should also say how they have contributed to vaccine hesitancy in this country. How they have repeatedly said things which have damaged the vaccine policy rolling out in this country. How they questioned Indian vaccine producers and their credibility…On the one hand you say this was set up by Nehru, Indira Gandhi and Rajiv Gandhi. Do you forget their contribution? On the other they go about questioning vaccines produced in this country and ask are they credible? They said, “I will not take it, that is Modi’s vaccine, that’s BJP vaccine”. Today, you are saying, “Oh, where is the vaccine?” Be consistent. You want it or you don’t want it? Make up your mind.
There is also this criticism about governance failure in handling the second wave. What is your response?
I can understand the tragedy and the impact it has had on individual families. In one way or the other, everybody has been touched by this tragedy, particularly during the second wave. I am really sorry that the extent to which the burden fell on families. Children are left orphaned. But the speed with which it spread and the intensity with which it spread, all within a matter of 10-15 days, no amount of preparation could have been adequate. I am not saying this because I am in government and therefore I want to defend it. I am not giving a “Bachao”, I am not giving a saving statement. States, Centre, private hospitals, medical fraternity, who would have imagined the extent (and) intensity with which it came and the speed with which it spread? Since October, money has been given for oxygen in hospitals and for beds and other infrastructure. Work is going on.
So how much of preparation would have been adequate and if somebody actually knew this was happening? For instance, the opposition parties, were their states prepared? I am not finger pointing. At this time, what are we talking about? Governance failure? How much more would have been sufficient? Can somebody put a number? Impossible. Look at Japan, do they have less money, are they less in buying vaccines for the entire population? Are they incapable of handling? After all, they are a very organised and systematic society. Osaka’s hospitals are full. I wish them well. That’s (also) the case with Taiwan, with so many places where the virus has surfaced again. In this time, with all humility, I would only say all of us have to work together to alleviate the suffering. We have to keep working till such a time peoples’ suffering come to an end.
How do you see the privatisation programme in the wake of the lockdown?
We are on course on disinvestment. I am not doing it just for revenue. I am also doing it because it’s a policy, it’s a Cabinet decision and, above all, by keeping them there and if they are not professionally run, it’s a loss of taxpayers’ money and I am answerable at that end.
How much of a worry is the global inflation situation as well the domestic price pressure?
In answering this, I will talk about governance. Not only taking care of Covid-related matters, but even on essential goods, essential food items, edible oils, pulses — the group of ministers kept meeting and making sure that we have imports in time, orders are placed in time, stockists who are hoarding release stocks. Every such thing has been happening even during the lockdown. Seasonal variations, supply shortages — all this will lead to this question. We are making sure that meetings are held so frequently that, if there are interventions required, we will do it. We do not want prices to be a burden.
Petrol price has crossed Rs 100 a litre in some parts of the country. Will you review taxes?
It is not just for me to decide, there are many layers, including the states.
The stock market indices are rising. The question often asked is this a recognition of India’s prospects or is there something wrong with this exuberance?
I am not getting into what causes the exuberance or not. It is a fact that Indian companies are doing well, listed companies are doing well. Indian macroeconomic fundamentals are sound, India seems to be the place even by the global investing community’s assessment and India seems to be the place for future manufacturing. Today, our schemes have been attractive enough, for instance, the performance-linked incentive scheme. FDI flow has not really abated, it is going steadily upwards. So, obviously the stock market is reflecting it and it’s also true even the Indian public is no longer just looking at small savings or risk-free saving. They are also willing to invest in markets, mutual funds, and have direct investment into stocks of companies which are transparent in their operations. Sebi’s interaction tells us about the interest and awareness on stock markets in the last one year. So, the common people of India have also realised there is a potential world out there.
How much of a concern is the global liquidity situation?
I don’t think it’s an issue to be worried about at this moment. These things will have to be watched before we undertake a policy intervention. But at this stage, we are not talking about liquidity-related issues, which are global in their nature.
The insolvency process has been bogged down by some promoters gaming the system. Is the government taking a close look at how to get past these hurdles that are being sought to be put up to slow down the process?
I am so glad that the courts in India are repeatedly reaffirming the fundamental strength of IBC and its legality is strengthened by every judgment. Of course, there is such gaming which eventually results in loss of time. For companies this is the biggest burden, you go bid genuinely for a company and the committee of creditors is willing to take an offer and then suddenly somebody puts a spoke in the wheel. So, those kinds of things are the ones on which we have to apply our minds and seek some kind of an intervention, if necessary, by bringing in amendments.