Not being risk-averse in face of Covid crisis: FM
NEW DELHI: Finance minister Nirmala Sitharaman said she is not being “risk averse” in her response to coping with the economic impact of the Covid-19 pandemic and the 68-day lockdown imposed to slow its spread, which saw India’s economy come to a near-complete halt for part of the first quarter of 2020-21.
She added that she has no option but to increase government spending.
“After all, among the four engines that support the economy, three have come to a complete standstill. It is public expenditure which has to do the heavy lifting.” The government’s
borrowing calendar that has already been announced indicates as much, Sitharaman said. The government has already raised its gross market borrowing target for the year to ₹12 lakh crore from the ₹7.8 lakh crore announced in the Union Budget in February.
Debt market analysts expect a further increase in this to ₹13 lakh crore.
The government’s relief package announced in May has been criticised for not having an adequate direct fiscal stimulus component and not doing enough to spur demand, but in an interview to Hindustan Times, the finance minister said that she believes it does enough for both supply and demand.
Still, she admitted, she has been receiving feedback from industry on the need for one more stimulus.
“One more may be needed is what we are hearing from the people who interact with us, and we are trying to see what it is that we can do,” Sitharaman said.
Finance Minister Nirmala Sitharaman expects the economy to take a turn for the better in the second and third quarters of the financial year after contracting by a record 23.9% in April-June following the outbreak of the coronavirus disease pandemic and subsequent lockdown. In an interview to R Sukumar, she said the government may offer a second stimulus package, adding: “...we are trying to see what it is that we can do.” Asked how she would describe the economy now, Sitharaman said: “My sense is people are doing their best against all odds to stand up and be ready to run.” She added a caveat in the context of the ongoing India-China military standoff in the Ladakh sector: “Of course, Ladakh is one imponderable; we will have to keep everything in that context ready.”
First-quarter GDP declined 23.9%. Half the year will be over soon. Have you done any assessment on what’s likely to happen to the annual GDP?
We are doing an assessment but I don’t think we have arrived at any number. Logically, Q1 and its number was influenced by the total lockdown. Post-Q1, gradually the unlocking has happened. Possibly, even by July, you had levels of capacity utilisation rising in certain industries, and today, roughly, many industries tell me they have reached pre-Covid levels. If in the second quarter, at least 50% levels have been reached, then it can’t be as bad as Q1. The revival is also happening in many labourintensive areas. This is also corroborated by the fact that migrant workers from many states have started going back (to their places of work); on their own volition, and some industries, I am told, have also arranged to pick them up. Labour is returning.
Some industries are telling me that domestic demand is increasing, no doubt, but that they are also seeing export orders increasing faster than their expectations. I’ve heard this from the steel industry, for instance. I guess, the second quarter, the third quarter, will be better.
But will it be a recessionary year?
I don’t know if I should conclude that about the whole year even now. There is no denying the first quarter’s decline is substantial.
What about revenue receipts? Do you see them picking up?
Yes, and the signs of it picking up are already being seen in GST (Goods and Services Tax) collections, in some other state-level revenue, but the assessment about the direct taxation is a bit mixed because it has to be taken on board that last September we announced a drastic reduction in corporate tax. The impact of that will be seen in corporate tax collections — one of the main components of our direct tax revenue. Income tax will suffer on account of the Covid lockdown.
The corporate tax cut last year and many of the measures announced as part of the relief package have longer gestation periods — they’re not going to kick in immediately. What are your immediate plans to boost sentiment, growth, and employment?
The ‘vocal for local’ campaign, together with Atmanirbhar Bharat (Self-reliant India) campaign, is one of the biggest ways to improve sentiment. When you direct the government’s focus towards promoting local products, ensuring policy support exists for them, ensuring incentivisation will happen for them, and create the necessary ecosystem for them... Even if you think the result will be long-term, there will be an immediate change in sentiment, production priorities and investment priorities.
There have been demands for a second stimulus. You’ve said you were keeping your options open. Is there any thinking as to when this might happen? When will industry need it the most?
We are hearing everyone out, we are analysing every area of the economy. I am open to one more support if necessary. We are constantly exchanging a lot of thoughts with industry...
They must be asking you for one immediately...
One more may be needed is what we are hearing from the people who interact with us, and we are trying to see what it is that we can do. There’s no point in me hurriedly getting something out. What we have announced till now, it is not as if it has benefited one at the cost of another.
An area where people have consistently asked for some kind of intervention is on the demand side. One way is to simply put more money in the hands of people through some mechanism. Have you been thinking of a demand-side intervention?
My argument has always been that whatever we have done hasn’t segregated supply from demand. I’ve also argued that this distinction is purely for the textbooks and isn’t all that watertight. Any spend on one does have the effect of overflowing to the other. Whatever we have done so far, people may see it as only supply side, I can see it flowing to also stimulate demand.
To elaborate, in the UK, businesses were given cash to retain workers, or in the US, many Americans got a cash payment... The expectation here is that at some point of time there will be a direct cash, fiscal stimulus for businesses and individuals to boost demand.
I can’t really say I’m tailor-making something now whilst I have also not closed the option of giving where necessary. The inputs are continuously coming from various sectors and also segments of society. Let’s see how it works out.
One of the things India has also tried to do is to wean away businesses from China. The logic being that if we have the right kind of tax structure, policies, and labour laws, companies would be happy to do business here...
That’s actually working out. Between November and March, we met a lot of companies likely to move. We also worked out the Productivity Linked Incentive Schemes (PLIs), which has been a good success, particularly in the telecom sector — the first PLI was launched for IT and electronics. Other departments are seeing the ministry of electronics and IT being successful in getting companies to come and start businesses here. Departments are building their case up for this.
Where do things stand with the states on GST?
We will wait for the GST Council to meet. The options given were explained; detailed notes were sent; the finance and expenditure secretary sat together...
How many states have reverted?
Twenty; all want option 1 (of borrowing ₹97,000 crore without the obligation of paying interest and principal) . We will go to the Council on October 5 and take it from there.
Have you looked at how much fiscal headroom the states have to spend? From the point of view of coping with the pandemic, the revival...
We do keep monitoring their borrowing limits. Even as we speak, not even one state has exceeded the 3% of GSDP limit available to them in a normal year. Of course, we have another six months to go for the end of the year. Over and above, we have allowed them to borrow another half a percent more unconditionally; another 1% with conditions; and another half percent contingent on certain reforms. So they can take it up to 5%. Even during the last GST Council meeting, we suggested that the last half percent could be given unconditionally if the situation warrants. So up to 4% is unconditional. Of course, this is yet to be finalised.
If states haven’t exhausted the basic limit, why is there a refrain of a financial crunch from them?
They are facing challenges; there is no denying that. They are the ones fighting Covid at the ground level. And they expect the Centre to be more supportive, which is understandable
Are you looking at some relaxation of the Fiscal Responsibility & Budget Management (FRBM) Act?
I am not sure I have a choice (of not doing so). The borrowing calendar which we have issued is far more than what I announced in the Budget. That should send out the message that I am not really being risk-averse because I do not want to exceed my fiscal deficit. However, there is an FRBM law and I am conscious of it, but if I don’t support, don’t spend... After all, among the four engines that support the economy, three have come to a complete standstill. It is public expenditure which has to do the heavy lifting.
You’re not worried about the fiscal deficit...
Well, if I have already issued a borrowing calendar that is far in excess of my Budget announcements...
Are you looking at radical or unconventional solutions such as helicopter money, or monetising the deficit like Indonesia has?
Specifically, we are not, but I am also looking at various ways in which I have to be ready to meet the challenges.
You have been defence minister. Especially in the context of what’s happening in Ladakh, on the budgetary or spending side, do you see any constraints?
Not at all. I have been there , albeit not for a long tenure. I do understand the needs of the defence ministry. Now that I am here and you have a PM who is conscious of India’s defence requirements, we will not let it suffer. When there is a need, we will definitely meet it.
Which sectors give you the most hope?
What great encouragement it is to see the agricultural and rural economy have so much life. Covid, floods, landslides, nothing could put them down. Given that even today more than 50% of the population depends on either agriculture or allied activities, that is the big spark plug for Indian revival. I think that’s where the life of the revival is. That’s where I give complete credit to the Prime Minister for pushing through the farm reforms. In the post-Covid era, with liberated farm producers you will have a bigger multiplier effect — it will immediately have a bearing on rural labour; it will immediately have a bearing on agri-processing units; it will immediately have a bearing on inflation.
One demand that farmer groups and the opposition have raised in the past few days is some kind of legal standing, a guarantee for the minimum support price; writing it into the law, for instance.
Government procurement will still happen. Where it has happened through an APMC (Agricultural Produce Marketing Committee), it will still happen through them. MSP has been given in this country for decades. The list of items has increased to about 23. However, during the Congress rule, the emphasis has always been on rice and wheat — resulting in distortion in acreage under crop, at the cost of coarse grain, pulses, and oil seeds.
Pulses, at least till 2014, we grew far less than we need — ending up importing it. After crude oil and gold, edible oil is a significant import.
Between 2014 and 2016, the PM gave attention to ensuring India became selfsufficient in pulses. We were able to give MSP and bonus for pulse growers.
The Congress was myopic with MSPs; we have given priority to other crops too. If MSP has been used smartly by us... MSP and its versatile use has been far more established under the government. The quantum procured through government procurement has been higher since 2014. So who are you (the Congress) asking to hard wire MSPs into the law? Did your manifesto say that?
On a personal note, there’s been 6 months of Covid; it’s been a stressful time; there’s been a lot of economic pain. How has it been for you? Have you felt overwhelmed? Are you under pressure?
Every day, there is a challenge, and Covid is not over yet. The economy’s revival is topmost in the mind of the PM. We’ve all gone through this together — not just me, all Indians are going through this.
If you were to objectively look at the economy now, how would you describe it?
My sense is people are doing their best against all odds to stand up and be ready to run. Very clearly, there’s a sense that “we will come out of it.” Everyone is very descriptive about the kind of struggle they are going through and I can understand that, yet they are full of hope. I’m hopeful too — that the coronavirus will recede, and the Indian entrepreneur, small, big, medium, will succeed. Of course, Ladakh is one imponderable; we will have to keep everything in that context ready.
How much time do you think we have lost as an economy on account of the crisis?
That’s a question I can answer if the Covid crisis has passed.