FM Nirmala Sitharaman speaks on inflation, taxes, GDP and more. Read the full interview here

The last full budget before the 2024 Lok Sabha elections has delivered on most counts. In a boost to the economy and tax payers, the Union Budget 2023 focused on inclusive growth, fiscal consolidation, infrastructure spending, green growth, youth empowerment and a strong financial sector.

The budget proposed a record high 33 percent increase in capital expenditure amounting to Rs 10 lakh crore, which is 3.3 percent of India’s GDP. The increase in capex is aimed at improving the country’s road, rail, port and airport infrastructure and making India a more attractive investment destination.

In an exclusive interview with Network18’s Group Editor-In-Chief Rahul Joshi, Union Finance Minister Nirmala Sitharaman highlighted that inflation has come down due to both Reserve Bank of India (RBI) and government's actions. She added that the fall in inflation doesn't seem to be a momentary affair.

Sitharaman also said that the twin deficit problem is not as severe as before.

Speaking about tackling the COVID pandemic, she said the government had to engage in conversations continuously with all the stakeholders and come up with schemes which would provide relief to the people. She credited the people of India for keeping pace with government with respect to pace of decision making.

A: I had no precedent before me to handle such a situation, there were no given templates. There were no examples to follow and there were no theories which would have worked in such context. So essentially, we were going by continuous conversations with all kinds of stakeholders – those who have directly some things to say about the industry and its sufferings, MSME and its sufferings or even those who were observing it with a mode discerning eye. So we had to engage in conversations continuously with all people, take their view, wait for ourselves to see which one is alright, which is more suitable for us and which is not. We also had to take courage in saying, it may not work out for us in one particular way because eventually somewhere all this has got to be answerable.

Therefore, I think I would immensely recall the ways in which Prime Minister (Narendra) Modi led the conversation with us. He would never tire himself from meeting us, he would never say no not today. So with all necessary precautions taken for COVID, following the protocols, we would still meet and talk about things.

Eventually, whatever had been at that time decided and put out as schemes, one thing which was not so much relevant for dealing with the pandemic itself, but yet had to be done was not to let go the opportunity to continue to reform process and so that was carried on.

We may do many things, we may have a stable, clear-headed leadership which stands by us and gives us the guidance under the Prime Minister and we may come up with the proposals and launch some specific schemes at that time to give relief and so on but eventually it is the way in which the people of India have absorbed it all. Some absorbed it and found best ways to go around it with this kind of a sucker which is coming from the government or some handholding which is coming from the government.

So the credit goes to the people of India for having been in clued position with the government’s decision making and they kept pace with it all. So that is why today, we are where we are, its entirely the way in which people of India absorbed whatever had been done from the government’s side and put it to effect on the ground.

A: Yes. We had to do our homework for every such input which came in at that time. We could have always said, this is what appeals to us and we would have gone ahead, but no, we had to consider every such advice which came in and also go through the depths of what it would mean, how will it be executed, whether it can really bare the results and so on. Because whether we chose one way or not, we should know why we have not chosen a particular way and be able to justify, saying our understanding was this and that is why we did not take it.

Today, I have the advantage of looking back at it and say good that I did not take it because the results would have been very different. But the fact remains that we went through every one of the suggestions with equal open mindedness and rigour.

A: If well executed, if the states and the Centre work together, I expect tourism to really see a sea change. Flow of people coming in both from one-other states and also from abroad. It should actually be a good way of keeping the economy active. If that is going to be this year and also medium term, I also see the momentum that PM VIKAS scheme is going to come up with. Because what it does at least from the way in which I have done this work and understanding that scheme and to see how best it can be tailored, it touches that segment which is sort of self-employed, which has skills, which maybe traditional skills, but which are very productively used and that itself has a huge market, niche market of its own.

If by launching PM VIKAS we will be able to touch upon a large section — not confined to any particular few castes which go by the description  Vishwakarma, but we are including everybody who uses his hand, some tools, produces things — that is a huge layer which doesn’t get covered under A scheme or B scheme or C scheme. Now we are touching them. We are actually giving that material difference of receiving better attention, better raw material, better marketing, better professionalised way of aggregation and so on, with fair rated credit from bank and so on. I think that layer which has remained unseen, untouched till now, but very recognised because of the quality of products that they produce, will now make a big difference to us.

Equally the push on green is not going to be any less. In every sector there has been provisions made in the Budget for them to do the transition from depending on fossil fuel to a renewable energy sourced fuel and that will touch every walk of life, not just farmers, not just women in household, both from the point of view of user and also producer. You will generate enough power for yourself and be able to also sell it.

The final but the most important I would think is the way we are going to shake up and also give life to the self-help women’s group which exists in the rural parts of the country. Some states have extraordinarily done well on self-help groups (SHGs), in the last few decades. It is not as if they have been formed only today, couple of decades, they have been on the ground. 81 lakh of groups exists and it is they who we are now trying to aggregate, bring them together like cluster, see what they want to do in terms of production or services.

For instance I just bring in a very private sector example – Lijjat – the papad after all was a women's somewhat self-help group. Look at the kind of product, the quality the branding, the perception about what is Lijjat can always be superior in quality. There is never a compromise on it and people seek it even though from the general papad pricing it is slightly higher in price but still people prefer it. So, like that as SHGs and I don't want just to end with the papad making it should be everything else also. So, depending on the skill sets available, the raw material available, we want to make sure that SHGs to come in to benefit from government policy and also through digital marketing, run professionally as well.

A: I look at the budget for having covered all the sections of the society. We have tried, and it has been the detailing which has consumed a lot of time in preparation of this Budget. The details is what has brought the difference in touching so many different sectors and segments of our society. We have got something on offer for each one of them. So therefore, if it is being received very well, I am very glad. But of course, that motivates me to be able to now take it upon myself to better implement it, down to the last person who it's aimed at. So I would think the impact of the Budget, the immediate impact of the Budget on the market and subsequent to, let us say, for whatever reason, it trailed back, I think in the next few days, the Budget's impact will still continue to hold the markets high.

A: I want to recall the words, coming from the horse's mouth has greater credibility. Both State Bank of India (SBI) and Life Insurance Corporation of India (LIC) have issued detailed statements. And I know the chairperson or the CMD has himself come out and explained how they are not overexposed or whatever they said and also said look, we are sitting over profits for the exposure that we have, which is well within the limit. That's what I understand, they have said and I have again read it through the media. They have very clearly said that their exposure is very well within the permitted limits and that they are even now with the valuation falling as well, they are still sitting over profit. So, that is the word from the horse's mouth.

We do have the Financial Stability Boards (FSB) meeting which happens; once in six months we meet; even recently we have met. So, I can only very clearly say both RBI and we, because of the FSBs meeting, know that the Indian banking system — if anything at this stage for me to use this word, I want to use it with a sense of responsibility — having gone through the twin balance sheet problem, Indian banking sector today is at a comfortable level, with their non-performing asset (NPAs) coming down to absolutely low levels, recovery is happening and their position is very sound which gets reflected in the fact that when they go to raise monies in the market, they are absolutely comfortable raising monies as well. So, the entire macro-economic analysis, which any expert would do also highlights the fact that how comfortable the Indian banks are placed, and that cannot be that if they are at risk.

A: India remains as before an absolutely well governed stable government and also very well-regulated financial market. As a result, I think the investor confidence which existed before shall continue even now. Our regulators are normally very, very stringent about certain governance practices. So one instance, however much talked about globally it may be, I would think, it is not going to be indicative of how well Indian financial markets are governed. So many lessons have been learned over the decades, and therefore, I think our regulators have kept our market well in prime and prim condition.

A: I think it will be sustained because the pent up demand argument was very, right nearly four-five quarters ago, when post the Omicron we were coming back, people thought 2022 festival season was driven by revenge shopping, pent up demand and so on. But pent up demand won't stretch itself for more than one season, if you want to take it that way.

2022 festival season was in its normal course. And there was no exaggeration in the markets or even in consumption. So I think it has now reached a level where it will sustain itself.

A: I am sure you observe the Indian economy as well in all its great detail. Demand doesn't remain stable and then it doesn't remain only going upward. It does come down sometimes and does go up some other times. In fact, at that time, during the pandemic, even during the lockdown, most of us felt the rural demand is very high. And what could explain it, we thought that the farm outputs were very good and as a result they were having quite a few money in the hand and therefore they were able to sustain. So that happens soon after the harvest.

But rural demand even today, in terms of the people who are in the farm equipment, manufacturing areas are quite comfortable with what is going on in the rural market. It is not as if demand has affected them. So people are purchasing equipment’s to do their tilling or farming activities — that is one. I am not just talking about tractors, but even the other equipment’s which go in.

Second, also rural demand which is FMCG related or your daily consumption related items, your GST revenues — whilst I don't want to say that revenue GST going up is purely on rural, it may be urban and rural — but it means that it cannot be maintaining a sustained level if one of the segments rural or urban really fall down drastically. So I don't think it's worrisome if at all (there is) any drop.

A: Well, I realised that if I do comment, it may look as if I am guiding the RBI or anything like that. I suppose yes, the way in which inflation has come down, both by RBI’s action and by the government's action — and the government's action has been steady and at it for some time. So I expect since the fall in the inflation, doesn't seem to be just a momentary or a one-month affair, it should sustain itself in the process of coming down. Therefore there shouldn't be that much pressure on the central bank to keep the pace of increasing the rates, but the MPC will take a call.

A: It is not as severe as before. When exports come down, you are going to have the current account deficit. But it's also now suddenly going up as well as it was before a couple of months ago, one. Second is also the import; imports also keep slightly going up sometimes, but it is also coming down. If these two factors are primarily the ones which we have to concern ourselves with monthly fluctuations, fluctuations I say, should not worry us. But if every month there is a steady decline, and there doesn't seem to be a sign of increase or coming upward, uptick as you would say, if there is no chance of an uptick predicted in the next few months, then I think I should worry. But monthly looking at coming down and going up need not worry us so seriously.

A: They are in it already, I would think. But I have been explaining this, I am not sure if industry is explaining it as much, but I read it, I read it in the sense my inferences based on the kinds of discussions which happen. India's industry, the old India industry as well as the new which is the IT-related industry, software and so on. Both old India industry and this are transitioning also with the energy related matters, transitioning in the way in which their shop floors operate.

So, the investment that they make is not to create one more unit of what they already have. The investment that they have to make, and therefore, the conscious decision that they have to take, will now also look at not just expanding existing capacity the way it is, but also looking at bringing high technology, Web 3, robotics, 3D printing and so on. So that, together with moving towards more renewable energy use, making a green product of what they are making, for instance, steel industry is facing huge barriers in Europe. Now, their business of having to invest and expand now would be not to just produce more steel, but to produce green steel.

So the investment day has three new dimensions which have never been into consideration earlier, invest and produce, produce green, produce also with the efficiencies of technology. So all this, when it comes into play, when your decision-making is being done, does take time and more resources. So I would want to give that advantage for India's private sector that yes their process is going to be somewhat more complicated in terms of taking the decision. But I think the atmosphere is conducive for that on all grounds technology, green and so on.

A: Actually, the answers lie in your own question. PM Awas Yojana is also to be done by workers in the rural area, who normally would have gone for let us say in the absence of this, would have gone for Mahatma Gandhi Rural Employment Guarantee scheme, that is one answer. Because even this has got to be done by people in rural areas who are looking for jobs, just as Jal Jeevan Mission also goes through rural works. So, they have these opportunities as well which are coming not in a small incremental change, 6 percent increase. Rs 79,000 crore for PM Awas and Jal Jeevan also getting a huge allocation. So, these two also are there.

Second MNREGA is a demand driven scheme, the more people come saying we want the job, we give them the work. So, what is stated at the Budget time estimate tends to keep adding to its resources or demands, based on what comes from states. I need more, then we add more to it and go to the parliament with a supplementary demand. So you if you see the last 3-4 years, inclusive of the COVID year, naturally the BE number and the RE numbers are so different, in that RE is much higher.

If you now go back to the last two years, where the actual numbers are available, BE, RE and the actuals, you will see the actuals are a lot more than the BE and in some cases exactly as much as RE which is enhanced or even better than the RE in increased amount when you realised it in the actuals. So you ended up spending a lot more even as you are going on. So I am a bit now worried that this is becoming a staid question, 'MNREGA you cut it'. Just see the pattern for the last three years, it starts with a number at the BE, keeps going on, because it is demand driven and when the supplementary demand stage comes, it's actually a lot more.

A: The desirable is one thing, but that desirable number will have to be tempered down by the global realities. The kind of uncertainties with every economy in the world faces, I don't think anyone economy is so immune that the global volatilities don't affect them. So every economy is affected, particularly for a country like India, which, for at least two critical items entirely depends on imports - fuel, fertilizer. So when you are looking at importing that many big ticket items, your uncertainties are lots more and lots more pronounced. But even provisioning for that and building a Budget, we have definitely ensured that we will be not as much be affected by such uncertainties as would any other country be. And therefore the numbers that we have given for the growth is very realistic.

A: No, it is still there in the Budget documents. It may not have been a part of my speech, but it is in the appendix to the speech. It's also in the rest of the documents, where we give the actual numbers and the activities which are going on and so on. See the cabinet has after all taken a call that certain companies will have to be privatised. And that motion has the approval of the authority concerned, which is the cabinet. So the process goes on. But of course, because we will have to also see when is the best time for it to be done, given the fact that we have already done the homework and kept it ready for just going out to the market this consumes a lot of time, this preparatory time.

Post that is when we literally watch out for the market and then put it out. So both the factors, preparation and best time in the market influence when you put it out. The processes on, on many of these items.

A: Absolutely, particularly on those where the cabinet has already given the go ahead.

A: This is what is happening, the processes on, the amendments will have to happen in the act and then also look at the market and then it will have to go through.

A: Of course it's on because the cabinet has given the approval.

A: See, it has two-sided problem - one, you have to make up for those handicaps that Indian exporters face, whether in logistics, whether it is the cost of electricity or whether it is any other inherent handicap that they may have in terms of labour or in terms of the place they are located in and so on. So, for these inefficiencies because of certain handicaps, it is necessary to give them some kind of redressal, in the sense give them some incentive or remission of duties and taxes on exported products (RoDTEP) like scheme which is already on, so that is one thing.

But it's also the usual way in which you would say, if a market is difficult look for newer markets. If a market is difficult see what you want to do about making yourself attractive for that market. You do road shows or you spend money in branding yourself, or you appoint such agents who will tell us about the tastes and preferences in that market and so on. And looking for another market you will obviously spend some money and go on road shows, open up avenues there. But today, the typical problem that you face, not just you meaning Indian exporters, but many face is the lack of demand in those markets because of recession which are normally our marketplaces where we send out products, whether it is your textile, whether it is your diamonds, whether it is your gems and jewellery, whether it is your tea, whether it is your basmati rice, and so on.

So I am taking those which are symbolic of India, there are others components, auto components, electronic parts, which you very well manufacture today. So the when the recession has hit these economies, and when I say these economies, not just those in which your present, but even for the newer markets, which you might otherwise aim at all of them are hit by it. So that's where the problem gets even more compounded and we will have to work together with the exporters to see how best we can help it.

A: No country would want its exports to languish and imports to bloom with any trading partner. But the issue has two pronged answers. We should be conscious not to have to consume things which come overly from only one destination. But that doesn't mean I am imposing any view, we should also be conscious of buying it from elsewhere if it is necessary at all. For India's exports it has to also look at ways in which market can be expanded, in that territory or in any other geographical jurisdiction. So it is always a twin game. It is like a pair of scissors. You have to look at both sides.

A: See, when I talk about the government's view, I don't want to speak as though this government's view or that government's view. Who after all, implemented it for the first time? After the decisions were taken at different layers of officialdom, the political dispensations which brought this in was not just NDA, UPA was actively those who brought it forward. The entire question of introduction of new pension scheme was during the Congress's period. They didn't at that time talked about rollback. They didn't at that time, talk about bringing the old system back or anything of that.

So now, if without adequate looking into of what it means, are we paying the current generation of pensioners by loading it onto the future generation and how far -- because in government the arguments will quickly come back to you saying, but when government borrows it's also living a burden on the future generation and so on. But that is the argument, would we all look at what is reasonable balance? Would we look at what is it that we are leaving for generations to come?

Yes, you will have to have an economy running, you will borrow to a certain extent, but unless we have a complete understanding of this, the fiscal implication, the fiscal health of the state, not just today for the next decades, to rush to a conclusion may not be -- and I was glad to hear in one of the book release programs that I attended, Shri Montek Singh Ahluwalia talked about it. It's not, I am taking up something which emerged out of a private conversation. In a book released, publicly when asked, he did respond. So it's not as if now we are talking on political lines. We have to talk on Indian economy, its strength, not just Indian economy as government of India, but every state's economy, and then take a call on it.

A: I have not given myself a timeframe. I am more looking at it to make sure every Indian citizen makes his own choice, her choice. It's one thing for me to say I am bringing in a better system, which is going to be less complicated, in fact, least complicated, which also is going to give you a rate, which is going to be reasonable for each one of our levels of income and make it attractive, therefore for compliance and also for the rate, I pay less tax there.

But it's another thing to have a system which is going on. Where unfortunately - I don't want to criticize anybody - the impression is I have so many exemptions given, which incentivizes me to save for insurance cover, for medical cover, for even saving for better interest earning that I can have, and so on. I don't want people there to think that I've denied them that please, if you want to have it, have it that way. But it's not just one government or the other, in general, the philosophy that governed it was you'll have all those exemptions and you will feel tempted to have yourself cover, insurance cover, give yourself insurance cover or savings or whatever. But your tax rates were so high. So it's nice to give you some incentives, but good enough for me to have a big return in terms of the tax that I collect.

But whereas what I'm giving you now, which was introduced two years ago, this the second regime and Prime Minister was very clear that taxpayers should know, actually, what are they paying and exactly feel comforted that they're not paying much. And actually bring the rates down, make it simple, so that anyone sitting at home should be able to file the returns, and that's the end of the story. I don't need to keep immense documents and so on.

So we've brought that in and steadily we're making it attractive, but not forcing anybody to get out of the exemption regime. But the fact remains that the rates have been very high, and you still got some discounts so that you can go.

A: I am more talking about the layers which are covered by these beneficial tax rates. I would think in that layer, at least 50 percent will come over.

A: Yeah, I have a number, but I don't think I can off the cuff say it.

A: Eventually, the take tax rates must be absolutely low and the assessee friendly, citizens cannot be burdened with taxation. But that is, when I have widened my base sufficiently. It can't be that few people pay and they pay huge amounts, and I have to run the system, it shouldn't be that. It should definitely be wider the base, lower the tax, and therefore achieve both the objectives of collect your tax from those who can pay it, but collect enough so that you're able to run your schemes.

A: I gave you the logic, I can always incentivize, you go for insurance, go for savings, go for this and come up with a fantastically high rate and say alright, I've given you discounts, but I need my money. Instead, I prefer a completely acceptable and lower tax rate and people to feel that, alright, I'm not being burdened, there is no reason for me to avoid or evade the tax and pay it up.

A: I was going to say. I am on the side or I belong to that school of thought, which says, if the taxpayer is left with more money in his hand, because we collect less tax, I would think that he is the best judge to decide where he has to put his money, and he doesn't need an incentive to run his family, or to protect them from ill health, or not bother about his future, save for future and so on. So why do we want to underestimate our citizens? If I give very high tax rate, then I also have to tempt them to say alright, go about saving it, because I'm giving you some incentive here. But I've left more money because I tax you less, you are the best judge to do what you want with you money.

A: Where have I taken away?

A: That is not taking away. It is like saying - beyond Rs 10 crore of a house that you have, why do you want to also expect favors for a second or the third or the fourth. And there have been instances I might say without revealing any names. People who have bought house, sold house, made immense profits out of it, but who still enjoy these sort of – Rs 10 crore house I should still get my benefits from the government.

A: But I've not given away something and taken away something. I'm only giving. I've not taken away anything.

A: No, but if you're referring to the surcharge, which I brought down, and which therefore is going to give benefit to some of the upper middle class and high net worth individuals (HNIs), it's also because the Indian tax system should be seen for not being so harsh. With your 30 percent surcharge, you were reaching a total tax of 42.7 percent. 42.7 percent of tax taken away - even a person who's that talented enough, skilled enough, and is paid very well for his contribution to the firm and has a good earning, take away nearly 42.7 percent doesn't make a system look fair and therefore we brought it down.

A: The PLI that we've given out with 13 sectors is definitely China Plus One list, which is sunrise sectors, which are important sectors for India to have its own strength.

A: I think the funding is also waiting to see more innovative startups claim for the next stage. It's not as if it's a funding winter or it's not now a scarcity of funds. It's more fun seeing the opportunity that is available for them. And they want to look at better options also even among the startups. And India started in 2016 in a major push, I'm sure startups existed before, but the push happened with the honorable Prime Minister in 2016, announcing a policy and subsequently coming up year after year, some concessions. So they also go through a cycle one round done, the next round of good options. They are there. They will, I'm sure, be available.

A: The agenda, of course, is by now fairly well determined. We will be talking about the debt situation globally. Because many countries, which were even middle income countries have suddenly got into debt traps and those traps are really vicious traps, they're not able to come out of it. Now, during the pandemic, there was a scheme which the IMF and also looking at the G20 formulation, there was a plan which had come debt servicing. And many of these countries didn't have to service their borrowing for a certain period because of the pandemic and there was a call for extending it, it was extended. But we are also making sure that enough monies are available with these institutions, multilateral institutions so that they are able to better respond to situation, have better leverage over the funds that they already have with them. So these are matters of discussion, debt servicing, also debt financing, multilateral finance institutions and their reforms about which honorable PM has spoken several times, UN reform, IMF reform, WTO reform, World Bank reform and so on. So we'll be discussing many of these.

Also looking at a global kind of SOP to be available, to be agreed upon for regulating crypto assets, whilst recognizing the central bank has the authority for issuing crypto currency, the rest of the assets, which are being created outside, which are using very useful financial technologies even those will have to be discussed because regulation cannot be done by any one country singularly. It has to be a collective action because technology doesn't brook any borders.

A: Very difficult to say. Each one had its own challenge, but each one has its own charm.

A: Listen to a lot of music.

A: Classical Indian music, both Hindustani and Carnatic. I sleep well every day. I have a sleep routine.

A: Absolutely. Because we have a good Prime Minister who's got that kind of a vision and the strength of the leadership that he brings along helps the country. So good sleep.