India is forecast to post strong growth of about 7%. Do you think global developments pose a risk to prospects?
More than risks, I would say they pose a challenge: uncertainties are going to increase, people will play safe rather than take calculated risks, investment will certainly be even more pressured. You will have to introduce a lot more policy certainties. Over and above that, because of supply chain disruptions, the cost of essentials and commodities will be upended. That will be the biggest challenge. And, how much readiness can you show in anticipation of rising commodity prices and in anticipation of short supply of crude? So the challenges are mounting. We have to respond like the way we did during and after Covid and when the Russia-Ukraine war started. So there’s more work to do, more readiness for firefighting. Domestically, our issues are fairly well laid out. Our monsoon this time is expected to be good, but you can’t sit back and say that monsoon, which is the most unpredictable thing for India and Indian planners, may be all right. You have so many external worries. So we have to be prepared for that.Has the ministry taken stock of the impact of the West Asia escalation?
There is some work going on there. People are watching. The chief economic adviser is looking at various indications of what is coming. Also, the public policymakers in the US, the Fed’s decisions, and the EU’s decisions are all constantly being monitored. The statements that are coming out of the Middle East itself – whether it is Iran versus Israel, or Israel on the Gaza issue – we are closely monitoring. The statement given by India’s external affairs (ministry), saying please sit down and negotiate for peace rather than escalate. We want to see it all settled and some calm to prevail. Economies like India, and emerging markets, all are going to disturbed. And is it purely for ourselves? No. We are growing fast, but the world economy is still struggling to come up to some reasonable numbers. Repeatedly, the IMF and the World Bank have been speaking about how it is the emerging markets that are going to be the engine of growth. Now, if the engine itself is going to stutter, it will be very difficult for the global economy to do well. So, it’s in our collective interest, globally, to restore peace.There is a consensus that inflation will remain high globally and rate cuts are off the table. What does this mean for India?
First of all, I think we should be in a way convinced that the Reserve Bank of India and a few other central banks around the world are taking independent decisions and not synchronising decisions based on what the US Fed does. Keeping growth in mind is important rather than keeping synchrony. India’s central bank is making its decisions with a lot of sense of discretion. Our public sector banks are also clearly aware of the liquidity cycle, the credit input cycle which industries face, and the typical requirements of MSMEs. Therefore, today, India’s banks and NBFCs are gradually understanding the credit and liquidity requirements. Inclusion of Indian bonds in the JPMorgan bond index, will certainly bring more money into India. And that would be through their natural flows, which come as per a certain proportion for each of the countries. So that itself will, I think, bring something like $20 billion to Indian markets, which augurs well for our requirement, particularly given that we’re looking at expanding manufacturing.The opposition has consistently raised the issues of rural stress, price rise, and unemployment. What is your take?
While I will get into the specifics, I don’t think it would be wrong for me to take the example from Mahabharata. Shalya, the maternal uncle of Nakul and Sahadev, joins with the Kauravas. Joins them because of pure deceit. Shri Krishna gets a promise out of him saying you won’t betray us. As a result, you find him being with Karna, as his charioteer, but one who constantly undermines him, irrespective of his achievements. He keeps telling him that he’ll never be able to make it.
The reason why I’m bringing this up is that Congress has ruled this country but it doesn’t believe in India and India’s capabilities. I would even go to the extent of saying that even if it believes that Indians are capable of performing, delivering, and achieving for some reason, like Shalya, it constantly keeps saying India can’t reach there or match China. While Shalya did it for some dharmic compulsion, the Congress party is out there to undermine, demoralise the people of India in their hatred towards Modi.
Between 2016 and today, look at the spurt in number of startups. Nearly 70,000 are registered. If you assume that each one has one plus two workers… Take the number of unicorns that have come out of them, 100 or more, they would be at least one plus 30 fellows. Decacorns are also coming out. That is one end of the story. The data, by district, of the number of startups getting money without collateral for people to do their own business. You think they are just taking the money and sitting at home? They’re not creating jobs? Look at the expansion in our real estate sector. Literally, every metropolitan town and every tier II town today is booming in real estate. Is real estate possible without construction workers? Today our service sector is contributing more than 60% of our GDP. Is it devoid of people who are working there? Are these not jobs? Look at the new age sectors, renewable… today the achievement in solar, you think they are running without people who are maintaining, establishing them. Outfits of people who are getting these panels together, are they devoid of workers? Look at the number of small finance banks that have come up, new fintech companies, which are bringing out applications and platforms, are they doing it with a magic wand? I am purposely using the word magic wand, the one which Rahul Gandhi thinks he is going to use to remove poverty. So, where are these jobs getting counted?
What about inflation?
UPA keeps saying that its 10 years were golden years of growth. What was the level of inflation: double digit for nearly 22 continuous months. No attempt to bring it down at all. Food inflation was somewhere in the range of 11.5%. They have no right to speak about inflation at all. If anything 2014 to today, Prime Minister Narendra Modi has set up a committee of ministers that is constantly monitoring – where are the godowns stacked which are not coming into the market? Take action against hoarders, import when you need. Onions were imported. Bharat brand atta, rice, all at nominal price going into the market. Are these not steps to alleviate price pressures? Inflation, even if it may hit people, we didn’t want the core basic foodgrain to be affected because of that. So we said you have to give it for free to the poorest of the poor. Isn’t that reaching people?
Another narrative that we’ve seen coming from Opposition-ruled southern states is on the devolution of revenue, that they get low amounts despite contributing more.
They are completely wrong. If the argument is what was given as a formula by the Finance Commission, and what has been accepted by the cabinet is not coming, then they are right. But that’s not the argument. Their argument is for every rupee that we pay as tax, we get only 29%. They are also putting this whole baseless argument that the pool itself is getting narrower because you’re collecting cess and surcharge. On both these scores, they’re fundamentally wrong. And on the second one, in particular, they are constitutionally wrong. Cess and surcharge, by the constitution, the central government has every right to levy if it chooses to levy. After all, over and above the Centre’s share from the divisible pool, if the central government has to meet the growing expenses on defence, or modernisation of the rails, or to build newer seaports, or to enhance the number of international terminals at our airports, where does the money come from? And these are not confined only to Delhi. World-class international terminals are coming up in states. Seaports today are doing turnover, which even some of the advanced western countries are not able to do. Who’s spending money to bring in that kind of technology and who’s going to build those seaports? Getting the right equipment for our armed forces, developing the border villages. So where does money come from? So cesses and surcharges are completely constitutionally provided if the Centre chooses. So that’s not taking away from the states. They are seeing that. But not speaking clearly helps them to confuse the minds of the people and therefore they like to speak in those kinds of ambiguous language.
The divisible pool for ₹100 collected in tax, how much goes back to a state, and what share remains with the Centre are all decided by the Finance Commission and it continues to be implemented for the next five years. The new Finance Commission is already constituted. Now, even the Finance Commission does not sit in Delhi and take a call. They go to the states, take their points of view and then decide on how much to go.
The BJP manifesto has refrained from populism but there are a lot of new ideas. You presented a very balanced interim budget. Do you think there is room to provide funds for these ideas?
I am not sure which ideas you are referring to. The overall manifesto has looked at schemes with a sense of responsibility. PM Modi is known for inclusive growth, making sure he covers sections in need of empowering them with greater resources. But equally, he’s never known for profligacy. Everything that we put in the manifesto is clearly worked out with a sense of responsibility that the taxpayers’ money should be used efficiently.
Will you be sticking broadly to the interim budget numbers for 2024-25 if the NDA comes back to power?
That’s a commitment given even in the vote on account, which was given earlier in the year. And the party’s manifesto and the governance issue run in parallel. I am confident we will be able to stick to them.
One idea that did not take off was asset monetisation and privatisation, including banks. Could we see more focused action?
They have got focused attention even today. Even as we talk about disinvestment and even as we wait for disinvestments to happen, the valuations of PSUs have been given a good ramp-up. There is improvement in professionalism in terms of running the organisation. These are all the work the government does. If you really look at the kind of valuations these listed PSUs have – their share prices have increased. That is what I want to underline. The disinvestment plan will be fulfilled, but in the meanwhile, the valuations are also being worked on.
The BJP is talking about 400-plus seats this time for the alliance. Is that something you think is achievable considering the party is near its peak in north India and yet to make enough of a dent in other parts?
NDA’s 400 plus is what has been given by the Prime Minister himself so we will work towards achieving it.
All ministries are drawing up a 100-day agenda for the new government. There is also discussion on five-year plan and a long-term plan for 2047. What could be the key focus areas?
2047 is the destination and five-year plan is what has been given in the Sankalp Patra (manifesto). But even as we swear in after elections, we are not going to be looking around saying okay where do we start for the next 100 days as to what we have to do. The checklist is getting ready. Essentially it will draw on the Sankalp Patra and keep the 2047 destination (of the country becoming a developed economy).
There has been discussion on next-gen reforms in taxation, especially GST. Is GST simplification on your to-do list?
It is one thing for the BJP to see it and also talk about it in the Sankalp Patra but it is a totally different exercise when you go into the GST Council. As it is, the council had already recognised the fact that rationalisation is important and a committee of state finance ministers was formed and some work happened. But after that some state elections happened and again now the Lok Sabha elections. So as soon as this is over and the GST Council meets, this will be taken up. As a council, I think, there is recognition that rate rationalisation is one of the very important things. Equally, to clean up the system, which for some reason got muddled in some areas, in some sections on the input tax credit, duty inversion, all that.
There is a growing concern in industry on the rising instances of notices by the tax authorities. Is their concern valid?
While I don’t want to ignore their concerns, I think the situation got muddled because there were some court orders, some time-bar-related issues and also because of the transition from manual record keeping to digital record as there was a hiatus between the two. And when the tax authorities went to take the details, they had to rely on manual data. If you are relying on manual data, you also want to double-check that with the assessee. So you had to send them a notice. These are very legitimate and for sovereign duty performance of tax collection. Authorities are duty bound to ascertain and put on record the facts and, facts cannot be put on record unless the assessees reply. So notices had to be sent.
I know when it is year-end, the boards have a tendency to rush. I keep telling them they should start this exercise from October or November rather than March. These can irk tax assessees, I recognise. These will all improve.
The manifesto talks of revamping economic and commercial legislations. What is it alluding to?
Several things that we have already done to some extent – ease of doing business, some compliance requirements, too many penal clauses, some penal processes even resulting in a jail sentence, penalties, accumulating, fines being levied – all of them will be made simple. All violations are not with malafide intent. Some can be by error or omission and commission. It has to be looked at… and in order that too many layers of oversight are not there. To make it simpler, we want to look at it all comprehensively.
India and Mauritius just amended their tax treaty in line with multilateral agreement to prevent base erosion and profit shifting (MLI), which has made the investors jittery about retrospective questioning of investments at the time of exit. Will these be grandfathered?
The board (Central Board of Direct Taxes) will together with Revenue (Department) give a set of clarifications, so that doubts, if any, in the minds of investors will be answered.
The Insolvency and Bankruptcy Code process is seeing delays in resolution. Is it time to relook at the entire framework?
No, I don’t think so. IBC has actually made a difference. Imagine the days of Sarfaesi and the Debt Resolution Tribunals and compare with them the kind of results which IBC has given us. However, we need to strengthen the capacity of resolution professionals. We need to bring in greater standards of performance among them and also the attempts at various levels to game the system by vested interests are all things which we’ll have to weed out. With the NCLT and NCLAT doing their businesses speedily… and also filling up the positions in the NCLT and NCLAT can all improve the delivery of IBC. So, I don’t think the IBC has become ineffective or anything. On the contrary, it is proving that even against such teething problems, it has performed well. We’d have to speed up on very many other things which we will definitely do.
You had reduced the corporate tax rate for new investments in view of the global supply chain shift. Given that the manifesto focuses on global value chains, would you look at reintroducing it?
We have to study what the incentive of 2019 did for us. We need to understand how effectively newer investments happened. How much of it is domestically triggered? How much of foreign money, and how much FDI came in because of that? With that picture in our hand, we’ll be able to take a call in the forthcoming budget.
Fintechs and NBFCs have come under the scanner. Will this impact financial inclusion and credit access?
I don’t think it will play out like that. It’s more a question of looking at fintech and the apps which are being used as instruments by the wrong people. So regulating them is at one end aimed at people who are not really following the rules. But, regulation doesn’t mean that we’re going to touch on the number of fintechs for their function or any of that. We appreciate the work the fintechs are doing. We appreciate how our startups are playing a big role in it. We are global champions in that. Regulations are more for people who misuse the products.
Tesla head Elon Musk will be in the country to meet the PM. What is the company’s plan for India?
I’m not sure what the details are. But it is a very good sign for manufacturing in India, particularly high-technology manufacturing. There is an ecosystem which prevails that is being recognised by top-notch world companies and they are showing interest to come in and set up business in India.
Congress manifesto talks about a ₹1 lakh transfer to families? Is it fiscally doable?
Did any of you in the media ask them alright, ₹1 lakh was for how many families? Has he told us about the number of families he’s intending to give? Is ₹1 lakh for once or annually for all five years? Is that going to be the only instrument through which poverty is going to be alleviated? There are vital questions for them to answer rather than tout the promise for which they have not disclosed where they need to get the money.
India’s FDI policy imposes restrictions on investments from countries with which it shares a land border. While the concern is understandable for sensitive sectors, will it be reviewed for non-sensitive sectors?
At the moment, I have no idea if there is any re-look that is likely to happen. But certainly, India’s investments are looked at every time we make a technical decision. We are working on making India a manufacturing hub. But of course, it has to be Aatmanirbhar as well.
Former RBI governor D Subbarao has spoken about the pressure to fluff up numbers…
I had tweeted about it. In the days when growth was all fancy. If that was true, why did they have to pump up the number? Why did they put pressure on RBI to show a better number? So they were all cooking it up, right? They allege that the data under PM Modi is manipulated; they were the ones who manipulated. Respect for institutions and institutional credibility – are they the ones to lecture us? They claim that every institution has been played up and undermined by Modi. One write-up by a governor has shown how much they cared for the RBI’s independence, and that has come from the horse’s mouth itself.
