The government is looking at various different ways in which the Covid-hit economy can be given a boost, finance minister Nirmala Sitharaman told ET in an exclusive interview. Edited excerpts:Six months into the lockdown, what is your broad assessment of the economy? Most economists see double-digit contraction for the year and the recovery seems weak and patchy.They (economists) are right. There has been a severe contraction in the first quarter. And the recovery inputs that I have been getting, both because I have been talking with people on my own one on one and also when chambers of commerce and others interact with you, they are also giving you inputs. Recovery is happening and some industries probably are recovering faster than others, but is it fast enough? Too early for me to say. As opposed to what happened in the first quarter, this quarter we are seeing actual revival. It will be too early for me, based on this, to conclude as to how the year will end. We'll have to wait and watch. Is there also some thinking, given that Covid is still widespread and much of the economy is still in lockdown, it might be better to wait for some months before all the sectors are open and then you can think of a fiscal stimulus?No, that argument does not weigh on us at all. We are not saying ok let's wait and watch for some more development or let's wait and watch for corona to completely withdraw. Those are factors all of us keep sharing with one another saying what's happening, do we have a vaccine--this is part of the conversation. But that has not been the fact on which we are holding back. We are definitely looking at various different ways in which we can again give some support. I have said that I have kept my mind open about it. 78397092 So yes, a lot of things have been heard, a lot of options are being worked out. Ministries regularly hear and see the possibility of suggestions received from the industry whether that is part of what we can make into the government system. So, that work continuously goes on. Once something matures, we do take it up. But we'll have to go on trying and go on studying each of the options that have been given to us.On the fiscal stimulus--and your constraints are understandable--it’s not clear how much space you have given that the fiscal deficit is already widening and there is also the credit rating question. How much do these factors play on your mind when you consider fiscal stimulus, either now or later this year?I think the measures that we have taken have been taken very clearly to address the problem and also being sure we may engage with the rating agencies to explain the situation that we are in, the country is in, the companies are in, businesses are in. But we have not really allowed that to stop us from doing what is necessary for companies or for the various borrowers in the banks. 78397314 The fact that we went ahead with amending or holding the back Section 7, 9 and 10 of the IBC is clearly because we didn't want companies and their assessments to be affected because of Covid-related defaults. So, we very clearly said not just now but forever, defaults occurring as a result of this Covid situation should not be held against them. We being the government having brought in IBC and that kind of holding back on some of the sections purely because of the pandemic, are very clearly the steps which are in response to the developing situation on the ground and not being worried about extraneous considerations.Does India have the fiscal room to undertake more stimulus measures and will you have to go in for monetisation of the deficit in that case?Several journalists have told me they've heard, and therefore passed this comment for our observations, that many economists advised the government not to be worried about our fiscal headroom or not. Go ahead, using all kinds of expressions, helicopter money, go print currency, everything has been thrown at us. So, to be asked whether I have the headroom or not has to be placed in that context. Headroom or no headroom, the advice is go ahead printing currency, go ahead spending. Headroom is there? Have you got headroom? And therefore, questions and answers are all coming to us, which we are gladly receiving and also mulling over. So, whether there is enough fiscal operating space is not a secret, everyone knows how much our revenue generation, how much we have committed, what is our borrowing calendar. So that answers for itself I think.Can we expect any kind of fiscal stimulus measure by Diwali?If I can answer that, I will answer in detail, but I'm not going to be able to answer that now.There is a Supreme Court case going on regarding interest pertaining to the loan moratorium. What are your views on this?Yesterday (Monday) the court has been informed by the solicitor general that the committee, which was appointed by the government and headed by the former CAG Rajiv Mehrishi, has given its report. The report has been studied by the ministry, particularly the Department of Financial Services and it’s seriously under consideration as to the recommendations given by them. 78397145 And I think duly the solicitor general has informed the court that this is under consideration and therefore the court should give us a bit of time for us to come back to the issue. So, the court has given a direction saying by October 1 to come back and put in the form of affidavit and just so that everybody can have a look. So that's where we are.Should the court be getting into an issue like this at all in your view?Well, I'll be more interested in seeing if the court is seized of all the facts related to how banks function, related to how depositors will have to be cared for in this kind of an extraordinary situation. My concerns would be on that. And I think to an extent, about the depositors and particularly the comparable economic situation in which the economy is in and the trouble that they are undergoing are well in the cognizance of the court. To that extent, I can see that the court has taken their situation very well into their cognizance.On the issue of the GST compensation to the states, where do we stand?The GST Council is going to meet on October 5. The options given to the various states were explained by the finance secretary and the expenditure secretary sitting together with the respective states and their finance secretaries, principal secretary, finance. Post that the states have gone back to think about it and they have written letters to us opting for whatever choice they had. 78397161 The 20 states that have written to us have all opted for option one (Rs 97,000 crore compensation) and we are going with that to the council. The facts will be laid before the council, the options given to them, they are fully seized of it, it will all be discussed. Let's see what council takes as a call.Could the Centre sweeten the deal a bit to get the opposition-ruled states also on board for option one?At this stage, I'm taking all these details back to the council so that the council can mull over and give us the information.There is a perception that BPCL and Air India privatization are on the slow burner because of the economic situation or the lack of suitable bidders. Where is the privatisation process right now?In BPCL, extension of time was given, not just once but two times. And possibly the second extension is soon coming to an end. Therefore, we'll have to take a call to see whether we go ahead or we want to give an additional extension, that call will be taken in the next couple of days. And even Air India received the two-month extension because we were just coming out of the lockdown and that extension also should be coming to end but probably we have a little more time than we have in the case of BPCL. We want to go ahead with both. 78397172 Why has there been a delay in the appointment of MPC members and when will that issue get resolved?There was no intention for any delay. It just so happens, given the consideration of so many different factors which are playing out because of Covid. However much all of us are keeping ourselves busy doing a lot things, there are sometimes logical tying up of decisions that take a bit of unexpected time. I'm sure it will get announced in a few days.On the Vodafone arbitration ruling, has the government formalised its stance? Is it going to appeal?No, we haven't finalised our stance as yet. The arbitrator's decision which has come, we are studying that judgement. We have not finalised yet as to what will be the next step.It can be argued that the outgo actually is very little. Some have suggested that the government accept the award and this will be seen as an investor-friendly gesture.That's a point well taken. In fact, sometime between 2014 and 2015, the then finance minister Arun Jaitley had made it very clear that this government, under Prime Minister Modi, does not believe in retrospective application. Whilst no one ever denies the right of any sovereign government to decide on amending anything, our faith lay in amendments, but prospective application. 78397352 We don't believe in retrospective application and that was more than once clarified by Jaitley, both within India and even when he went for the World Bank conferences in the US. And at that time, he was pointedly asked as to why won't he want to then roll back this amendment of 2012. Again, Jaitley said this particular thing is in the court. Even as it is in the court, I may not be able to do anything on it. However, the point that Jaitley made then, saying that it is still in the court, it may not be possible for him to deal with it, now has come to a logical end. The court has pronounced its view. So now it's a question of the government going through the judgement and then taking a call, even on that specific issue. We are looking at the judgement, we also understand the appeal has to go to Singapore, if at all we choose to. But we have not taken a call yet. There may have been some element of a pent-up demand and some of it may also play out during the festive season, but after that the economy could sink again. What are your thoughts about a larger fiscal stimulus?The Atmanirbhar announcements were not just one ministry related. They were covering several ministries and for the small and medium industry, which is itself a vast spectrum of industries, two or three different kinds of schemes were given to those who were under stress. Those who were NPA and also for the banking sector--which had small finance companies and also NBFCs--support was given so that that bridge between the banks and medium and small industries was effectively resourced to be able to extend any facility to them.There were also reform-related steps, which of course you see having a positive impact though politically some parties may want to speak against it. We have taken these major steps of reforming labour because factor reforms were often quoted back to us. Factor reforms also meant often that you're touching agriculture, you are touching the primary sector and also labour. So, opportunity has not been wasted. In fact, the challenge has been looked at as an opportunity and these reforms were also brought in.Power sector, even as we extended the borrowing limits for states, we brought in that element, whether it’s for ration cards or whether it was for power sector reforms--those steps had to be taken. And many states, I'm glad to say, have readily accepted it and some of them have now come to claim that additional 0.25% (fiscal room) because we have done the ration card or power sector reforms.So, I think the Atmanirbhar package should not be seen as just that one announcement. That announcement itself was for five days covering so many different sectors whose gradual change we are seeing now. After the announcement, I'm monitoring each one of them till today. And therefore, you're able to see the announcement having an impact on so many different sectors.There has been opposition to the farm and even labour reform measures that were recently announced. Do you attribute this to politics or lack of communication and what does this augur for future reforms, particularly labour reforms?I do attribute it to political grandstanding. I would describe it as a disservice to the nation. The disservice is confusing the farmers, putting wrong information out to the farmers, misleading them, getting to violent street protests when you had an option to discuss in the parliament, engaging with the government in every way even before it came to the parliament. Government did engage, most people engaged, farmers engaged. On an amendment which has taken place on an item which is in the central list, inter-state trade, an item which is clearly in the central list, for the Congress president to ask state governments to do something to bypass this using state laws, disservice at so many different levels. 78397200 On a matter on which the Congress party itself was putting it in the manifesto, APMC will be disbanded. And at that time, they didn't think if the APMC is disbanded, what will happen to the minimum support price, what happened to government procurement.But now, after due consultation, and when I announced it in Atmanirbhar Bharat, not a whisper. Now the session comes in, we put it on the table of parliament, we go through the process, and they thought in the Rajya Sabha, we might lose when they saw numbers in our favour. They didn't have the courage or the conviction to say well this is also something which we put in our manifesto and therefore either we support. Instead, they did a violent protest inside the House, in the well of the House. And that kind of a threat inside of the House is unbelievable. And after that when they go out and carry out protests again, violent protests, burning of tractors on the streets, what is the line that they use? State governments pass an act to bypass this. It is something on which Centre has the right because interstate trade comes in the central list. And is there a belief in the democratic institutions? Is there a belief in the constitution of India?What is the Congress party advising state governments to do now, to bypass the constitution? Oh what a disappointment is the Congress party. They have stopped believing in institutions. But that is the trait of that party, that’s the DNA of that party. Whenever they are being pushed to be in the opposition, they do everything to damage the constitution. They ran the parliament for the sixth year, when it is elected only for five years during Mrs. Gandhi's time. And in the sixth illegal if I may say, illegal extension of the House, they made major amendments to the constitution itself. At that time, that was the DNA, now that DNA continues. You don't believe in parliamentary process, you ask state governments to violate the constitution by saying bypass what the Centre has done. Centre has done what is meant within the central list. It has not encroached into the states list. But still the advice given by the Congress president is to bypass it, what a sin. I'm sorry to say today I'm really worried if this opposition party is only disserving the nation.Arun Jaitley had spoken about investigative agencies sometimes getting overenthusiastic. There has been some talk of this with regard to the Bhushan Power and Steel resolution that’s being seen as an impediment to the IBC. What are your thoughts on this?I agree that the message which goes out is definitely not a helpful message in that it looks as if through a proper process, like IBC-driven or NCLAT-driven, if there is buyer who has bought something which was under the liquidation process post the NCLT sending it or NCLAT sending it, post the full flow of IBC having taken its course, it may not be right then to go and lay any claim. Very well taken and I fully agree that if at that stage the ED comes to bring into the picture the new buyer, it doesn't augur well at all, yes agreed.But in this one particular case, there is an element of money laundering which still remained unaddressed post the liquidation process. A money laundered asset is also perceived to be part of those assets which have been sold off through the liquidation process. If the ED had a claim of money laundering and for which the ED doesn't know which property in that set of properties which have been sold off, ED is right to the limited extent that look, I have a claim because of money laundering. 78397378 The seller please pay it up to me, I have no issues. But if the seller tells I have no assets left, it's all gone into the basket of properties which have been sold off, now ED, having established money laundering, is just watching without the claim for that payment. So even today, I think the ED has gone to the court saying please tell us. After all, if I have built the case up, somebody has to give me. So, it is not the intent at all, and I'm fairly seized of this case. IBC has done its job but ED needs answers. It's not to get the new buyer into trouble that the ED wants them, but if the new buyer for instance, is able to say that this property is the one which has to go because of the money laundering, ED is just going to want the money back. This is that little tentacle, the foot in the door the ED is saying. If somebody was to locate the money, ED is completely out of it, because ED has to account for what it has done. The intention is not to give a negative message about the IBC. Through the courts, some of these issues should ideally get legally settled, as to how to extricate laundered properties when the issue also has a liquidation-based solution coming into it.But in this case the sellers are the banks, so ideally it should have been done earlier when the sale itself was taking place.Absolutely, it could be so. So, I can't decide now as to which would be the better option, now that it is in the court. My interest is to make sure the IBC process doesn't get diluted in this process nor should there be, because the IBC has given a good solution--ED you forget it in spite of you having built up a case. At the same time, the new buyer should not be put through difficulty. Even I have this but it is a dharam sankat.The banking sector may come under pressure because of Covid. Is there any thought of recapitalising public sector banks? There have been reports that some public sector banks (PSBs) that are not part of the big reorganisation may be privatised?I have provided Rs 20,000 crore for recapitalisation in the first supplementary demand for grants. In the meanwhile, with a lot of nudge from our side, some of the banks have also raised capital from the markets. We think that’s a very healthy practice because now very keenly and clearly we want banks to be professionally run. They should also show their worth and net asset value and everything else and be able to stand up in the markets and raise resources. They will feel more self-confident if they do that. So, we are encouraging them to raise capital in markets. I’d see as we go along as we want banks to be healthy. We are not going to let down our banks, but yet they need to do some introspection and be ready for raising resources outside also. What about privatisation. Any plans to privatise select PSBs?On privatisation, a decision was taken by the cabinet on IDBI. We will have to see how it goes. Disinvestment ecosystem is a bit down because of the coronavirus, whether banks or anything else. We talked about BPCL and Air India earlier. Disinvestment environment will have to be tested much before we consider anything.After the border clashes, India has been disengaging with China on the economic front. But Chinese investors are also big investors in Indian companies, particularly startups. Has the government taken a view on the fate of these investments? A lot of investment proposals are stuck.We had made the position clear in one of the early amendments during the Covid era about investments coming from countries we share a land border with. That largely said, we are not stopping any investments, but we also want clearances from that committee which is in home ministry and MEA to take a call along with the DPIIT. So, from the countries sharing land border, investments are being regulated but not stopped. But, if there is this feeling that is coming that we have stopped investors from a particular country, no we have not done any of that.Under the Atmanirbhar scheme, government wants many goods including toys and sports goods to be made in India. Import restrictions have been imposed on a wide category of goods--it seems like a reversal to the pre-1991 era.Absolutely not. Comparing pre-1991 with now, if I may say, is faulty. We couldn’t produce many things pre-90s. However, today we have gone to the extent that even Ganesha idols and agarbattis being imported. Gradually, some of that (manufacturing) which existed pre-90s or that which rapidly developed post 90s in the last decade and a half has gradually been eroded completely. Take the example of APIs (active pharmaceutical ingredients). India was producing a lot of APIs to the extent, if my data is right, at that time we reached a peak of 60% of global requirement of API being produced in India. And, on the back of that, India became a major bulk drug exporter. Somehow, we keep our share in bulk drugs largely generic drugs. Do we have APIs today in this country? Minuscule. So, we had the capacity, which got eroded that today we are dependent on perhaps a single source for all our API requirements. So, this is a classical example of what you can produce in this country, what you had capability to produce, produced it the country and lost it. So, get that production back, capacity back is what we are saying. 78397395 APIs is a classic case but then there are other things like medical devices which we have the technology, we have the capability, we have the skills to produce, but we still blindly think we need to import. We may not be able to produce every medical, diagnostic equipment we may need. We may not have the technology for some hi-tech ones, but that which we can produce we don’t want to import from outside. So, if there is an import restriction, it is for those items. It’s not blind across the board. All of us are spending a lot of time to make sure we don’t hurt the industries that want raw material, intermediary products, from abroad which can’t be produced in this country. We are not stopping those. But we are also saying please refrain from the temptation to import which you have the capacity to produce, and more, which you may given the encouragement produce in the next few years. So that’s how calibrated this whole thing is.Before every GST Council meeting there is always a clamour from industry for rate cuts. Auto industry is hoping for some good news. Is there any chance of that happening?I don’t know. I can’t guess what the meeting would want to do. We will wait for the council to take a call.What is you view?I have no view. I have to be part of the council. Let the council take a call.Do you have head room to cut GST rates?Last two-three meetings, where we went to ask for rationalisation in those particular commodities in which there was a duty inversion, the council thought it may not be the best of times to do the correction because doing the correction would have meant increasing the rate in some items. The council didn’t think it was an appropriate time to do that except for one item, which they thought was worth doing, that was cell phones. In major items where there was a need to reconsider and rationalise, the feeling was not now and that we need to wait for some time. 78397242 The rise in India’s inflation is seen as a concern but globally deflation is a bigger worry. Economists say India can tolerate higher inflation for some time. Have you given any thought as to whether the 2-6% band should be stretched a bit as the monetary policy review will be coming up in March 2021.Well inflation is good for some reasons. It definitely reflects greater demand. Inflation also goes up if there are supply side constraints. So, it’s our business is to ensure that timely redressal is done so that supply is available as per the demand so that market forces can determine the rate. However, specific inflation targeting has been left to the MPC. They may take a call as and when they sit and watch. From the government’s point of view, particularly basic consumer goods and perishable goods, we are making sure and monitoring on a weekly basis that there shall not be any shortages. Increased demand is welcome, but there shall not be any shortages.The US Federal Reserve recently made a change in its framework, seemingly abandoning inflation targeting. Inflation targeting is generally going out of fashion across the world because the problem is not inflation in major economies right now. Do you think any change is needed in the monetary policy framework, in its mandate, to emphasise employment and growth and perhaps less so on inflation?I agree with you we need to have a holistic approach in looking at the economy. We can’t be so into our silos to look at with a myopic view saying this is what I have got to monitor and this is what I have to target. I am doing my job and there is no harm. Yes, that held sway, compartmentalising the economy and each does his own, then it is fine and larger whole will fall in place. If that route is taken, maybe it is fine. But I think in the last few years, not because of Covid, but in last few years it has become very obvious that globally you are seeing that low for long, interest rates remaining low for unjustifiably long time, and nothing could push it up. Low for long was bringing fatigue in policy makers. That was obvious. Added to that is this pandemic, which has brought in so much stillness into the economy. Economies need to be buoyant. Prevailing situation got aggravated due to Covid. As a result, there is more than one reason now for the economy not to be looked at in silos in which it was placed and looked at in all these years. But now to come out of the silos and look at it in a holistic fashion because each has an interplay into the other. And, if the interplay is not allowed its full play, as it were, you are not going to have a fair solution coming, a solution which will have impact on every side of the economy. It may take care of the one end, forgetting like the billiards board things are getting played here and there also by that one shot, and leaving many sides unattended to. So, I would strongly believe that this silo based, myopic with blinkers faced kind of approach to be gotten rid off. We need to have a holistic approach to handling the economy.IBC was one of the key reforms of the government. It has been suspended because of the Covid pandemic. Do you think there is a need to look at the IBC and perhaps a newer model as the pain is going to be there for a few more years.I don’t think IBC has been given a full play yet. After all it’s not even been three years. In those three years, the NCLT and NCLAT have done their maximum best even with several challenges in terms of the number of available benches, manpower requirement, good quality resolution professionals. So strictly speaking, to be fair, IBC has not had its full play. If you compare, look at the duration for which you had the DRTs, the Sarfaesi, everywhere you had a long duration. Of course we have lost a lot of things, if we were very quick and robust we could have understood the challenges and difficulties posed which were being posed by them and come up with quick solutions to change them too. But, if those were given play within three years, we are talking about a diagnosis of the performance chart of the IBC. I don’t think that’s right and I think IBC should be allowed to show its full resolution tackling capacity.There is a sense that markets have run away from the fundamentals because of the liquidity surge and other reasons. Does that concern you because a market collapse can be another pain point for the economy? Are you watching that space?There are a lot of people who are saying there is a complete disconnect between the markets and the ground realities. Lot of people who also say that markets are probably performing in an echo chamber, but I am not going to sit and judge any of that. But clearly what I am also impressed by is that the retail investor today is very active. People have probably moved out of the fixed deposit saving mentality and opening demat accounts like never before. 78397256 In March, April and May, we heard people had opened new demat accounts, we thought it was because they all were sitting at home. Even last month, after unlock has come into play, there were nearly 10 lakh new demat accounts opened in a month, when in pre-Covid era you had 5-6 lakh accounts opened per month. So, this interest is not because I sat at home, I had more savings in my hand. Today retail investor is seeing that it is possible to engage directly and not through the mutual funds in the maker. That reality also tells me that probably observation by some people that the stock market is not connected with the ground reality is probably not right. Retail investors coming in such numbers means something is there. Some connect is there. It’s worth watching.For every stimulus, there is always this debate on whether it should be targeted more at the end consumer or should companies be benefited and that in turn will trickle down. Where do you stand on that debate?I don’t stand anywhere. I keep flowing as the water flows. And I have to take it as it comes.
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