FM's interview to Network18: Nirmala Sitharaman reveals NDA govt's macroeconomic philosophy and road ahead

To a question on whether 11% GDP growth and a V-shaped recovery is achievable and if so, sustainable of the next few years, Nirmala Sitharaman said the economy doesn’t grow on the finance minister’s commands, it is the fruit of toil and vision of Indian citizens and her job as the minister is limited to removing the obstacles in that path

Sreemoy Talukdar February 02, 2021 17:37:09 IST
FM's interview to Network18: Nirmala Sitharaman reveals NDA govt's macroeconomic philosophy and road ahead

File photo of Union finance minister Nirmala Sitharaman. PTI

Towards the end of the interview with Rahul Joshi, Group Editor of Network18, Nirmala Sitharaman said a few words that go at the very heart of the Narendra Modi government’s vision of India and give vital clues on this government’s handling of the economy. To a question on whether 11 percent GDP growth and a V-shaped recovery is achievable and if so, sustainable of the next few years, the Union finance minister said the economy doesn’t grow on the finance minister’s commands, it is the fruit of toil and vision of Indian citizens and her job as the minister is limited to removing the obstacles in that path.

“I don’t believe that I am talking about a ‘V-shaped’ growth or ‘X-shaped’ growth for people to judge me. My business here is to take care that I facilitate the Indian entrepreneur, the Indian migrant worker, the Indian workers who want skill, the Indian businessmen who want to run their business and take care of their family, it is my business to help them. The economy will get triggered based on their hard work, I don’t for a minute think it is me sitting in Delhi North Block to do it.”

The minister then referred to Indian cricket team’s stunning Test series win in Australia.

“If they could perform when no one in the cricket world thought Indians can perform when you had the typical Australian sledging happening, but they withstood all and showed performance, that’s pure India – the Indian youth which just wants that little help from you and they will do it all for themselves. So I believe that I am here to facilitate.”

It was refreshing to see the finance minister stress on India’s entrepreneurial spirit and its citizens’ hard work to revive the economy and restricting the government’s role to removing the regulatory cholesterol to help facilitate that outcome. It is an important step in making India truly aatmanirbhar (self-reliant) instead of keeping citizens perennially tied to the Welfare State’s apron strings through doles and entitlements. This is the toughest political choice but the biggest shift in mindset and status quo that must precede India’s rise to achieve its true potential.

The Opposition has predictably criticised the budget. Former finance minister P Chidambaram has slammed the Modi government for not giving a direct cash transfer to the “poorest 30 percent” bracket of the population. Apart from the fact that it is impossible to successfully identify such a bracket and not give rise to another fruitless debate over whether the targeted benefit has reached the intended recipients, economists are divided over the efficacy of the move.

A less controversial and more effective decision, however, is to increase the capex (capital expenditure) on infrastructure so that the first and second order effects expand the economy, boost growth and create employment opportunities. The government needs also to be commended for resisting the pressure to give income support to people during the pandemic to generate demand, since a lot of the debate and criticism of the government has centered around the Centre’s refusal to do so.

That debate has been settled. Economist and commentator Swaminathan Aiyar, a strong proponent of fiscal stimulus to the poor, recently admitted that his assumption was wrong.

“I will only say that I have turned out to be wrong to the extent that I did not believe the economy could revive to this extent without a stronger fiscal stimulus. The good thing about this is the fiscal prudence that Nirmala Sitharaman has followed. It means that the long-term scars of Covid will be much less,” he was quoted as saying in an interview to Economic Times last month.

This is why Chidambaram’s criticisms sound more like frustrations, and the government’s plan, with the benefit of hindsight, seems wise. In the interview to Rahul Joshi, the finance minister elaborated on why the Modi government refrained from doling out more money beyond the Garib Kalyan Package.

“Giving money to people so that immediate demand-push will happen and through that people will be expected to spend, also had a question with it: Will they spend or will they keep it aside for a rainy day? Also, spending will result in immediate demand increases – no doubt, possibly if they spend – but will it be a meaningful trigger for a virtuous cycle to be triggered? Unless that spending happens in sectors where the (force) multiplier will work, there is no point in spending in areas where the multipliers are weak.”

This is crucial because government’s fiscal stimulus would be meaningless if the funds aren’t channeled back to the economy. It may only result in a wider fiscal deficit and inflationary pressure with nothing to show for it. Then these very political parties that are clamouring for direct cash transfers to the poor, will accuse the government or profligacy and abandoning fiscal prudence amid a pandemic.

The FM had a very clear answer on why the government chose the capital expenditure route.

“That is why we have taken this route of qualitative expenditure, capex through infrastructure building, capex for health so that you bring in such infrastructure and such facility for health, and there take an approach of holistic health and then look at agriculture. That is why we have gone through this route.”

Faced with a once-in-a-century pandemic that has ravaged the economy and pushed it deep into a recession, the government had no choice but to borrow money and widen the fiscal deficit, but the way it has chosen to allocate the spending — investing in infrastructure and human capital instead of giving out doles, farm loan waivers or other form of subsidies, show that the government believes that growth must precede redistribution so that the revenue pie becomes larger.

Author Monika Halan wrote in Hindustan Times why this is good strategy: “The big positive is that the larger government spending will not get frittered away… but is being spent to build infrastructure – roads, railways, ports and waterways. See this in context of your own budget – it matters what you take a loan for: Is it to eat dinner or for an education degree? The dinner gets you instant gratification, but the education allows you to earn more in the next few years… The government has chosen the politically tougher option of infrastructure spending rather than appeasing interest groups like farm intermediaries.”

Taxing the taxpayers even more to raise a part of the revenue instead of borrowing nearly Rs 12 lakh crore to fund capital expenditure would have been the easiest way out. Pre-budget chatter was centred overwhelmingly on whether the government would impose another cess, surcharge or at the very least a ‘wealth tax’ or some other instrument on the taxpayers to raise money for its expenditure. Sitharaman deserves kudos for not taking that route amid a pandemic that not only would have dampened market sentiments but deal a big blow to the air of trust that the government seeks to build with taxpayers, and harmed policy stability.

In her interview, the finance minister said: “I certainly didn’t want to fund this whole operation through taxation. By increasing tax, getting the money and then spending is not something which any of us even put on the table for consideration. So that is why I have made provision for large borrowings with the tax buoyancy kept at a very conservative level, and with disinvestment, asset monetisation and improved goods and services tax (GST) collection, I hope we will be looking at better ways of handling our finances.”

Politics invariably surfaced during the interview, and the finance minister’s budget speech that referred to substantial increase in spending on government’s part for MSPs for wheat and paddy was referred to. In her budget speech, the minister informed the House that on wheat, total amount paid to farmers in 2013-2014 was Rs 33,874 crore that increased to Rs 62,802 crore in 2019-2020 and Rs 75,060 crore in 2021-22. The number of wheat growing farmers that were benefitted increased in 2020-21 to 43.36 lakhs as compared to 35.57 lakhs in 2019-20. On paddy, the amount paid in 2013-14 was Rs 63,928 crore, that increased to Rs 1,41,930 crore and is further estimated to increase to Rs 172,752 crore, respectively.

To a question on why the farmers are doubting still the intent of the government, Sitharaman said: “That is surprising to me actually because if our MSP performance is undoubtedly steadily going up from 2014 till today, to doubt the intent of the government and that is where I feel I honestly want them to come on to the table, be at the table and talk it out with Narendra Singh Tomar, the minister and specifically tell us where your grievances are.” She again extended the offer for talks.

“I honestly equally know that farmers, at least those who are present there, some of whom are farmers are probably misguided. I want them to talk. I want them to talk about particular points of concern. I want them to tell us what in this is not right, we are willing to concede.”

Solving the issue through talks is the best option but it is difficult when one side adopts a maximalist position of “repeal the laws, or else…” The government’s offer for moratorium has also been rejected. Sitharaman’s comments, however, indicate that the government remains ready for dialogue.

Updated Date:

Subscribe to Moneycontrol Pro at ₹499 for the first year. Use code PRO499. Limited period offer. *T&C apply

also read

Centre lifts embargo on grant of government business to private banks, says Nirmala Sitharaman
Business

Centre lifts embargo on grant of government business to private banks, says Nirmala Sitharaman

Private banks can now be equal partners in the development of the Indian economy, the Union finance minister added

West Bengal reduces tax on petrol, diesel by Re 1; move will give respite to people, says state finance minister
India

West Bengal reduces tax on petrol, diesel by Re 1; move will give respite to people, says state finance minister

Earlier, Nirmala Sitharaman said that Centre and state governments will need to figure out a mechanism to bring retail rates down to reasonable levels.

BJP MP from Khandwa Nand Kumar Singh Chauhan passes away; Narendra Modi, Shivraj Singh Chouhan pay tributes
India

BJP MP from Khandwa Nand Kumar Singh Chauhan passes away; Narendra Modi, Shivraj Singh Chouhan pay tributes

Modi said that Chauhan will be remembered for his 'contributions to parliamentary proceedings, organisational skills'