Economic package will have multiplier effect, says FM Nirmala Sitharaman

Over five days, Union finance minister Nirmala Sitharaman announced the specific contours of a Rs 20 lakh crore economic package to help the Indian economy overcome the immediate crisis caused by the pandemic and the lockdown imposed to control its spread, as well as lay the foundations for a "self-reliant India".

Shortly after her announcement on Sunday, the finance minister, in a wide-ranging interview to R Sukumar and Shishir Gupta spoke about the rationale behind the measures; emphasised that credit to both businesses and individuals will help provide relief and spur demand; countered the criticism that the package did not have a strong enough fiscal component; acknowledged the crisis faced by migrant workers; and her hopes for the Indian economy in 2021. Edited excerpts:

Now that the entire package has been announced, what is the status of the budget numbers?

One thing we took cognizance of even before we announced the package and that is the borrowing [the government enhanced its borrowing limit for this year by Rs 4.2 lakh crore]. That is why we issued a fresh schedule of borrowing. But the rest of it, I have to wait and see. Because revenue generation and disinvestment – it's too early for me to make an assessment now. This is only May; we have 10 more months to go in the year, and what an extraordinary year it is already.

How about the funding? You have told us about the borrowing; will that be enough to meet any revenue shortfall? Or will you need to borrow even more?

We took a comprehensive assessment (of what we would need) and then went with this number (Rs 20,97,053 crore). At the time itself we were conscious that we were looking at this stimulus and also a fall in revenue. We have to see how it goes.

If there is a significant shortfall in revenue, which seems very likely now, what happens to the share of the states?

The collection is divided between the Centre and the states; that's the formula. If the collection itself falls, the formula will only give what it can give. Then the GST compensation, the GST based division that happens. I'm committed to give the compensation from the collection that I have. Over and above, if there is a shortfall, the GST Council will have to take a call.

What is the kind of fiscal deficit India is looking at this year?

It's too early to comment; I'll be able to say closer to RE (the time the revised estimates come out).

One of the criticisms of the package is the overemphasis on monetary and liquidity components in the package you have announced and that the fiscal cost is just 10-15%

It's amazing that comparisons are made with what other countries have given. At this time, I would request everyone to focus on where the money is going. I think it is important to reach out to those sections (of the population) that need relief to even survive. And not just individuals. If additional money doesn't reach small units, they can't pay wages; they can't buy raw material; and run their units to even 10-15% capacity. So I'm making sure that is where the money goes; wait for the multiplier effect it can create in its immediate ecosystem.

Even for small enterprises, which you have rightly said are the most vulnerable, what the package has is largely credit. You have steered clear of income protection and wage support. In the UK, for instance, even middle-class salaried employees who have been furloughed are eligible for three months of payments up to 2500 pounds a month. Why have you not thought of that? Do you think the lower middle class and middle class doesn't need that support?

Is there any section about whom I can say that they don't need it? Is it my business to even judge? Everyone needs help in this kind of environment – but to different degrees. But what amazes me is that the moment we compare, we compare with advanced economies, which also have the advantage of good data, which also have the advantage of a system that delivers. Now the system that delivers, after Narendra Modi became PM in 2014 created DBT – and so I can deliver cash; I can deliver gas cylinders; I can deliver fertilizer subsidy to farmers.

But do I have other data? Did anyone, before this crisis, have data on migrant workers? Has there been any political party or analyst or economist or public thinkers – did anyone know the size of the migrant labour population? In a way, I'm thankful that we are now discussing this in depth. Like we should. Whoever thought that it would take a pandemic like this to tell us that even migrant workers need to be registered? When we talked of wanting to give some insurance to such migrants – when we wanted to do this, the data on such workers from the states… Did anyone give us exhaustive data?

When we compare with others, when they have systems to deliver, which we have today, when they have data about workers, both organised and unorganised, and then given the size of that economy — I'm very different. So we have to adapt. I have to make sure taxpayers money has to be spent where it actually means something. This doesn't mean I'm saying giving it to the poor won't mean anything, but there's a limitation. How do I identify the poor? I can give it to Jan Dhan account holders, which is what I tried. But many of these migrants don't even have a ration card. States now have to go through the grind to see how they cover them all — in PDS, in Jan Dhan. In fact it is becoming clear that these visionary steps of PM Modi that are helping us now.

A lot of the reforms that have been announced are significant, even radical; but they will play out over the medium-term or long-term. But in the short-term, the two most important things are cash in the hands of people, to help them overcome the immediate crisis, and ways to revive demand. How do you think this can be done?

The term loans and the working capital loans that banks have now been asked to give automatically to everybody — unless the customer says they don't want it, the banks have to give it. Now when money flows to that little unit, he is obviously taking it to give wages or buy raw material. That is spurring demand. So demand doesn't just get spurred at the individual level — people getting money and going out and buying bread and milk and other things. It is also companies, however small, getting that extra loan, so that they can open up after the lockdown. Spurring demand can also happen at the institutional level.

We are also giving, through NABARD, additional money for small and marginal farmers. That money is going for the pre-kharif (monsoon crop) preparation. Post-rabi (winter crop) harvest, they are feeling the need for money – this will take care of that also. Isn't that money in the hands of people? I want people to go through every one of the announcements to realise how many of them mean more money in hand — and money in hand will spur demand.

There are some sectors such as aviation, tourism, hospitality, entertainment, where even if you give them money in hand, even a year later, these companies are going to be struggling because there is no demand.

They will come under one or the other schemes we have brought in — with the banks (credit). So, nobody is going to be left untouched. But touched the way you want? I may not have done that. But they will have access to resources. And this is after a lot of discussion with banks. Their hesitation to lend is because they are worried that the money won't come back; what if a business turns genuinely bad? What if a genuine (lending) decision ends up meeting a mala fide intention of the borrower? In order to egg the banks to give more, we have come up with a guarantee.

Did a potential downgrade by credit rating agencies hold your hand when it came to more fiscal stimulus, or did you decide to just focus on doing what was needed?

We did discuss the rating agencies. But all of us agreed that India wasn't singly or uniquely facing this problem. It is a global problem. Rating agencies rate you if you alone are not doing well in a world that is otherwise rosy. With a global pandemic, with every economy being affected….Ratings can't be done in isolation. I've thought about it, and it doesn't worry me. Look at the strengths of India: we are less affected; our foreign exchange reserves and macroeconomy are strong; we have had a six-year tenure of PM Modi who has handled the economy responsibly; our debt to GDP ratio has come down. Why would the rating agencies treat us badly? Rabi (the winter harvest), we have had a wonderful crop; and to the credit of the states, they have managed to get the harvest done, the procurement almost done.

A lot of the reforms that have been announced in these packages will need executive orders, notifications. Can we expect them in the next few days?

Yes. And some will happen through ordinance.

You pointed out in the course of the presentation today that the states are not borrowing enough. Why is this? Is it because they are anticipating very poor revenues? Or do they want the Centre to bail them out?

I don't know. They have been writing to the PM, the chief ministers; and the finance ministers have been writing to me. It also came up with the meeting of the PM with the CMs, that they be allowed to borrow more. So we allowed that, but also put out the factual position on their current borrowings [around 14% of what is permissible].

When you look at big business, the formal sector, business has been non-existent. And other than credit, there is not much for them. Some of the companies I've spoken to were expecting some sort of scheme — a wage protection one like what France has done for instance. In the absence of this, there will be layoffs even in the formal sector.

Again, comparing with France is very different. There are limitations to that approach; but we have ensured that every one of these businesses has access to bank credit. Without new or additional collateral, we have said they should be given term loans and working capital loans — only because they have to tide over this crisis, over this particular problem.

Where do you see the Indian economy in March 2021?

I am confident that Indian entrepreneurs, like Indian farmers, can weather any storm. I am not saying I will therefore leave them to their lot. No, I will keep facilitating them. But that spirit in them is giving me hope.

The PM Garib Kalyan Yojana you announced in March had measures to provide cash and food to the most vulnerable. Do you think that is adequate? I know you have extended the food scheme to migrant workers, but do they need more?

I will have to assess it.

And if your assessment is that they do?

Of course, we are willing to give more. Nothing is closed.

How would you sum up the package in one sentence?

In fact, that's why I quoted the Prime Minister. He said the package would focus on land, labour, liquidity and laws — we have done that. At the same time, every sector has been helped. I think this is a reasonably exhaustive package. And it approaches every section — perhaps in our own way, not in a way people wanted us to. There is hope for everyone to be benefit from this.

(Inputs and image from hindustantimes.com)