Budget 2020: It was govt’s desire to address every section that expected something, Nirmala Sitharaman tells Network18

In an exclusive interview with Managing Director of Network18 Rahul Joshi, Finance Minister Nirmala Sitharaman talked at length about her budget announcements

FP Staff February 01, 2020 20:50:19 IST
Budget 2020: It was govt’s desire to address every section that expected something, Nirmala Sitharaman tells Network18
  • In an exclusive interview with Managing Director of Network18 Rahul Joshi, Finance Minister Nirmala Sitharaman talked at length about her budget announcements

  • Speaking on the market's reaction to the Budget, Sitharaman said the stock market was not in full force

  • What we have done is to be able to bring in the MSMEs so that they do not burden and liquidity is available for NBFCs, said SItharman

In a record 160 minutes-long speech while announcing Budget 2020 proposals in the Lok Sabha on Saturday, Finance Minister Nirmala Sitharaman proposed cuts in personal income tax, extended tax benefits for affordable housing and gave relief to companies on payment of dividend in the Union Budget for 2020-21 as the government looked to boost consumption to bring the economy out of the worst slowdown in 11 years.

The benchmark Sensex tanked 2.43 percent on Saturday. Speaking on the market's reaction to the Budget, Sitharaman said the stock market was not in full force. "I am very confident that the market will understand all that has been announced in this Budget, especially over the deepening of the Bond market," said Sitharaman.

In an exclusive interview with Rahul Joshi, Editor-in-chief of Network18, Finance Minister Nirmala Sitharaman talked at length about her budget announcements including the new tax slabs, the government's fiscal deficit target, fund allocations to key sectors, and the stock market falling sharply post-Budget and more.

Edited excerpts:

In some senses, it was one of the most challenging times for you to present this budget. GDP growth at a 11-year low, private consumption at a 7-year low, whole macro numbers looking downwards at historic lows. What were you really thinking of when you were presenting this budget? Did you have to balance a lot of factors, you had to keep growth in mind on one hand and all the rest of it on the other?

Absolutely, it was the desire of the government that we address every section which was expecting something out of the budget if possible. Our attempt was to make sure that we came up with something which would boost consumption, put money for investments and creation of assets and with private investment being at a pace... I am sure they will catch-up also, we did not want to, at any point in time between July and now, cut down on public investments, on the contrary, we have only increased it. So the capex between July and now, if you look at the data, has only gone up.

How has the budget addressed these two big concerns that there are — the demand-side problem and the economy is investment starved?

That is one of the reasons why I started by saying – private investment will do their own whenever they would take their call on it and we have given them our intention by cutting the corporate tax. We brought it down to the lowest level...However, from the other side, from the government side, we wanted to make sure that money was going for investment and that is why the Prime Minister’s announcement on Independence Day... he spoke about a Rs 100 lakh crore in the next five years. We didn’t wait for the Rs 100 lakh crore projects to come, we ourselves spent a lot of time talking to states, talking to different private sector people and putting together a pipeline of 6,500 projects...

One investor facilitation centre is being started. Sovereign funds have — all in the last six months — been contacting us because they see India as a very positive investment destination. They want to come and invest in India. For them, we had to keep the pipeline ready, no point if they reach here and then search for projects. More than that, we have also given them concessions in our fiscal policy. We have given them tax concessions and while giving the tax concessions, specified that if they were going to spend it in infrastructure, lock-in period being a certain number of years — three years — we will give them the concession. All this has been tied up. So we are not talking today for it to happen some years later. Everything is kept ready, it should all start playing out sooner.

I will come back to this point a little later. I want to ask you a broader question. Do you see that the economy has bottomed out? We are seeing projections of the GDP growth rate of 6-6.5 percent. How do you see the economy and when do you think it will start reflecting in a turnaround. In the first half or in the second half of the next fiscal year?

I thought some of the data which has been released and the kind of common speech you hear from international observers and also the Indian industry themselves, are all very clearly indicating that negativity with which people spoke about India immediately after July budget...has all now gone away, at least I have not heard them speak about it. I can see some of the data which is coming through showing there is a turnaround.

Where do you see the green shoots in the economy? The former finance minister today said that 6-6.5 percent is not only an astonishing figure, it is also an irresponsible figure being given by the government?

I would have thought that this budget, if anything, has really put in a lot of work to show that we mean every number that we have stated.

Will the budget really stimulate rural demand. I think one of the things that everyone was looking forward to in this budget - how will rural demand get stimulated. So what are some of the specific things you feel will do that?

Nearly Rs 3 lakh crore has been allocated for agriculture and rural development put together and the various specific schemes which the Prime Minister has been talking about and the focus on aspirational districts backward among some of the states which are doing well and backward among those who are not probably doing so well... bringing in self-help groups (SHGs) as a backward linkage for aggregation in rural produce, making sure the coastal fishing villages will have their own fish Farmer Producer Organisations (FPOs), bringing the NABARD and Mudra to the rural areas to give them more of such loans with which the farmers issues will be addressed...These are things with which we think the rural issues can be meaningfully addressed.

Why do you think the markets are disappointed with your budget? Have they not understood it in its full sweep? Sensex is down 1000 points and Nifty is down 300 points. Were they looking for a big stimulus in sectors such as infrastructure, real estate, non-banking financial companies (NBFCs)?

Rs 100 lakh crore for the next five years but I have said the moment there is a requirement, I am ready to frontload it. The first line itself is I am willing to frontload it. I have given the pipeline.

Is there a provision in this budget for that?

Pipeline investment numbers have been very clearly put. Rs 22,000 crore have already been given for those two companies, which are going to do long-term investment in infrastructure funding. In any case, today to be fair, the stock market was not in full force. They were there but many of those concerned wings within the stock markets have not all been functional. On Monday, I am very confident the stock market will understand every aspect of what I have said in this budget and the kind of push that I have given for bond market, for deepening the bond market, for strengthening the bond market and making sure that India understands that there is one world out there which has still not been exploited fully.

You are hopeful that the bond market will react positively to the budget?

Of course, there have never been these many steps taken for bettering the bond market.

You are also banking a lot on foreign investment. You made it easier for sovereign wealth funds to invest in infrastructure, FPI can invest more in debt now, up from 9 percent to 15 percent. What was the thinking behind this?

Only because it is possible now. You already have a lot number of cases of banks and other such institutions in fact many NBFCs themselves raising funds from outside. They are doing it because they think the cost of borrowing is far lesser when they do it from outside and understandably. It is possible for us to be able to encourage many such borrowing from outside and therefore make the Indian savings be available for many others who cannot go out to borrow. So whilst opening it up, you are making sure that there is credit availability both from borrowing outside and also from inside – the cost of capital also will come down once you are able to get it from outside.

I will go back to the point you were making earlier about this push to infrastructure. You talked about this Rs 100 lakh crore to be invested over five years. Are you confident that this will be done over a five-year period and that the PM’s dream of a 5 trillion economy would be realised by 2024?

Absolutely, because projects and their absorption capacity don’t happen within one year. They spread the costs. As the project gets completion in process, you get more and more resource requirement which goes in and therefore to spread it over five years is not so much from our end saying you don’t want to spend now, you will stagger it. Even they will take their own time to take more and more even the funds are available they can only take a certain level at any point in time.

The economy will grow in double digits to be able to get there in five years or will we have to push this deadline?

I am making all the necessary steps to give that stimulus in the economy.

Let me come to the fiscal deficit. The fiscal deficit has slipped yet again to 3.8 percent. My first and direct question is will it lead to a downgrade in India’s sovereign rating, is there a potential risk of that?

I do not see that at all because we have been very responsible about the way in which we have used the forbearance in the Fiscal Responsibility and Budget Management Act (FRBMA). The act provides forbearance of 0.5 percent, we have not crossed that.

The numbers that we have given -- different heads, different places, different numbers, are all responsible numbers. I have even made a mention as to why my numbers this time given the fact that I have used the forbearance are well within the framework. So, I do not see India’s ratings coming down because we have breached the fiscal number.

In fact, we have complied with the framework given to us. If I do not do that and if I am stubborn about a number that I have, in today’s situation I am expected to spend more, how will I do that, unless I use the escape clause which is available for me? I have not violated beyond that?

The NBFC sector, which is a major source of credit for the economy, is in serious trouble. What are the steps that you are going to take to assure investors, the market that you are working towards solving this big problem?

Haven’t I made a mention that there will be? First of all, before the budget, we had given a partial guarantee scheme for them that they can pool their assets. First 10 percent will be supported by us, the stock cap will be given by the government. That has been used by several of them. The Reserve Bank of India (RBI) is constantly reporting on how that is developing.

Even now, what we have done is to be able to bring in the MSMEs so that they do not burden and liquidity is available for NBFCs. We have now announced that that kind of facilitation will be done for the NBFCs also. So, we have not ignored the liquidity requirement of the NBFCs.

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