Interview: Nirmala Sitharaman discusses Budget 2020, LIC and coronavirus concerns

Tanvir Gill (TG): I want to start off by understanding your growth projections for FY21. You’re projecting growth to come in at between 6 and 6.5 percent, a strong rebound is expected from the current 5 percent. Would you say your projections are realistic or optimistic given the current global economic environment, also, considering the fact that domestically, the financial sector is under stress?
Nirmala Sitharaman (NS): I would say it is realistic. And in a way, if you also look at what the economic survey, which is independent of the Ministry of Finance, which is compiled by the chief economic adviser, has projected, I think, somewhere we're all on the same page, but some margin.

I say it as realistic because we've taken various factors concerned on board and expect the revenue generation to improve, which it's already showing signs of. And if revenue generation improves with the commitments that we have made because of the nature of things now for expenditure from government side, essentially investment into infrastructure. And when you spend on infrastructure, you also have some immediate gains because it puts money in the hands of the people.

Core industries survive because of the demand, which will essentially drive up the investments. And therefore, I have reasons to believe that consumption will increase from that end also. So therefore, with income or the government's revenue generation on the one hand showing signs of improvement and on the other I'm looking at spending and investment bearing some results immediately in the short term. I expect my growth rate to be where it is I’ve said and therefore it's realistic.

Related stories

• 

  Breaching the fiscal deficit mark

• 

  Budget 2020: A mixed bag with no emphasis on jobs, addressing slowdown

• 

  Budget 2020: Why the government must reach its divestment target

TG: What is the anecdotal evidence that you're gathering, with certain lead indicators that gives you the confidence that the economy could be nearing a bottom or could be bottoming out soon enough? I’ll tell you some of the lead indicators that I’ve picked up. One is, tractor sales for the last couple of months have been picking up. I'm told that the winter crop sowing has been at record levels. GST collections have edged up. Anything that comes to your mind, which gives you the confidence that revival is in the works?
NS: The three that you've mentioned are very good examples which have been reinforced similarly by many other sources.

TG: Are these sustainable trends?
NS: I think so. And also, the rains that have come recently have also reinforced this belief, which was coming out during the sowing season, some months ago. With the crops benefiting from this recent rain, we expect this winter crop also to come out with good yields, which will mean that in the rural areas there will be more money for circulation. We have also seen this in the automobile sector. I'm not speaking for everybody, nor am I giving a complete story. The automobile sector has largely cleared its inventory, with which they had a problem rightly when we had presented the July budget. And immediately after that there was this very serious concern that the inventory is remaining, demand not really picking up. This has affected the automobile sector to a large extent, particularly because it pertained to the emission standards of the last generation. From April 1, we're going to have a newer one. So anecdotally, it's believed that many of them have cleared inventory belonging to the earlier emission standards, and those who are selling newer emission standard compliant cars or passenger vehicles are now telling clients to wait for a couple of months before the delivery is going to be made. So I see that as one of the signs of revival of demand.

Similarly, we are also getting anecdotal evidence confirmed by certain industry leaders that flats or houses sale are really picking up. Some announcement made a month ago for availability have seen quick pick-up within two weeks. So there's a revival even in the home buying segment.

TG: And that gives you the confidence that things are on track? The question on the fiscal deficit, 3.5 percent to 5.21 percent—is that the red line?
NS: It's only because, as I said, I expect revenue generation to improve. There is reason to believe that it will improve. The loopholes that had been identified in the GST have all been plugged and there will be a greater monitoring of it, and I expect GST collection also to reflect it. And in a way, the economy is showing a positive revival sign and as a result, revenue generation should be good.

Many of the disinvestments, the groundwork for which commenced soon after the July budget, is actually now giving us reasons to believe that they’ve indeed happened in the few months after the new fiscal starts. And therefore, disinvestment revenue together with improved revenue generation from taxable sources, gives me reason to think that coming down from 3.8, where this year I have use of forbearance, is achievable.

TG: As we sit today, you do not see a risk of slippage…
NS: I don't see a risk of slippage.

TG: What would then be your message to rating agencies? As you are aware, Moody’s note says they’re keeping the rating on in their status quo, not changing it. But they are concerned about the aggressive divestment target…
NS: Well, first of all, I think we have shown great prudence in managing the fiscal. I’m also very clearly showing signs of spreading my borrowing in the sense the ETF bond successes for the first time ever in India. I've also in this Budget very clearly opened up a venue for deepening the bond markets in India. I have shown through the income tax rate reduction and removing many of the exemptions, giving the tax payer alternatives where he can invest. You don't really need to only invest in fixed deposits or savings because there are some tax incentives being given, if you invest in a particular deposit or an insurance and so on. Now you're free to choose. So, I'm spreading the net to include retail investors into the bond market. So, with all this, I expect that the economy will achieve a certain buoyancy, and that should not be stopped by the rating agencies in assessing the Indian economy.

TG: I think the market is very enthused by LIC's IPO. It's a good quality paper that’s coming to the markets. The only concern is that with the ATC exemptions growing, the insurance benefits growing, that would impact the insurance business and thereby impact the business of LIC, and thereby impact valuations, which are the driving force for any IPO. What would you have to say about it?
NS: I would look at it from a different angle altogether. I am now allowing retail investors to make up their mind as to where they want the money to be. They can still be with the LIC, they can still want to have the LIC’s issue ownership and all that, which I'm holding from the government now, will be available for the private retailers to hold. That is one thing. And second, it also opens up avenues for the insurance business to be more nimble. When you have owners who are spread now even to retailers you’re answerable to a lot more of your performance. So isn't that going to give an opportunity for the insurance sector to now opportunity lying outside of the government and performance also commensurate with what would be the expectation?

I think the IPO offer of LIC has a lot more advantage to the sector than the limited option of giving incentive to go towards LIC or insurance because there is a car tax rebate given. That’s the kind of exemption which was put in place with a very socialistic mindset, where you were directing savings to go towards a particular sector.

TG: So this is where you’ve all compete?
NS: Yes. And now with the market opened up, options are available for an individual to choose how he wants to plan his future. Why should I limit myself to directing him saying you would go into this if you want the benefit? I would rather rest a lot of confidence in the individual in whose hands the money would be, to decide where he wants to put it. He can still go to the store, his stock option, and then decide whether you want to have more earning through putting in to a bond market rather than putting into a small rebate that he's getting.

TG: I want to touch upon the bond markets because that's a big measure that’s come by. You are committed to deepening the bond markets with the policy measures that you’ve taken. Could you highlight what is your thought process largely in terms of exploiting this window of opportunity for drawing foreign capital?
NS: I think in India, this is one area where over the decades, we could have done a lot more, but we didn't. And this is an area which India is therefore not really leveraged to its advantage. And therefore, we wanted to make sure that we stop doing this to expand the bond market, because through which I expect I will be able to have cheaper capital available. Also, in the Indian market, there are quite a few individual and retail investors who were interested in joining in the bond market where you don't need to have only big-end consumers coming in, or big-end investors coming in. In the recent ETF issue that we came up with, since we had made the units affordable, you had smaller investors getting into it as long as the package size was big. You had no option unless you had a certain quantum of money, you wouldn't get into a bond issue. It was limiting the interest. Now, we opened up that interest.

TG: So you have brought in debt ETFs. You have opened up the limits for corporate bonds. And the one thing that stood out for me was your plan for—actually, that I extrapolated from the statement that you were looking into doing away with the limits of certain G-secs for NRIs. That was a statement in the Budget document. Should we extrapolate that the listing of Indian bonds, rupee denominated bonds, is in the works and global indices? Can you lay the roadmap? When is it likely to happen, and how much are you going to raise via this route?
NS: I don't think I'll be able to commit to anything at this stage because we are still working the details out. And that is why, to the extent that I can say I've said it in the Budget speech.

TG: So it is happening.,,
NS: Yes. But the timeline is something the Ministry will have to work the details of out and then release.

TG: In the market, the number floating around is about $10-12 billion that can come in via this route. Is that a reasonable estimate?
NS: The market's estimate is not something which I can certify or reject.

TG: I have to try to ask you, because it is being seen as a meaningful move. Also the corporate debt market is slightly under invested, so opening up the limits you think, will attract more capital?
NS: Yes. Yes.

TG: Banking sector: People say that you missed out on making the big banks perform but I understand, because it's an ongoing process, and your relationship with the banks has been one of commitment and support. But there was talk about a TARP-like model, US-style TARP- like model for the NBFCs.
NS: Haven't we come up with what I would have thought, a small credit guarantee? And also now we’re opening up for some kind of support through the subordinate debt mechanisms. So we have not given a TARP, but we have certainly given what is workable in India. Because if I remember correct, the TARP that you're talking about also had to do a lot of investment in private. Most of them were private banks in the US. But in India you have both.

TG: But more so for the NBFCs, not so much for the state banks.
NS: There are NBFCs also within the government realm. The rural electrification, the Power Finance Corporation. You know, there are many others like that.

TG: So you continue to support them.
NS: Yes. But then the TARP type thing in India has its limitation.

TG: RCEP negotiations are on now. What is India's stand on RCEP?
NS: The Prime Minister also had made it clear when he attended the summit, we think the offer given was not meeting India's aspirations. Let's see what comes out tomorrow, day after, whenever they are talking about it.

TG: The thought process is valued at protecting domestic industry, which is very valid. You're also foregoing an export market that could be of potential.
NS: Well, that's the reason why I was in commerce. I engaged, my successor has also sincerely engaged with RCEP because we value that. But of course, we can't certainly engage if the offer is not really catching up with our aspirations.

TG: President Trump is going to be in India in a few weeks. He's done a treaty Phase One with China. There’s talk about reinstating the GSP for India. What could be the major achievement? What can you share with us with regards to a treaty being reworked with India?
NS: Well, I know the Commerce Minister's very deeply engaged in this and we hope something comes out of it positively. We'd certainly like to have that kind of a trade relationship with the United States.

TG: And finally, the coronavirus. It’s impacting the world, WHO has called it an international emergency. Are you worried? What can this do for global growth and thereby India?
NS: I think from Indian government's side, the Ministry of External Affairs is taking every precaution, and there are internal systems in terms of providing the necessary quarantine. Also necessary steps at the airports, at the port of call, necessarily, whether it's seaport or airports. We are making sure that we do the screening necessary and keep a watch out for those who don't exhibit any of those symptoms now. But because the carrier can lay dormant for some time and then reveal. We are making sure the institutions are geared to face a situation like that. And with the quarantines have also been located and the initial preparations to receive any quarantined patient is also all in place.

TG: Economically?
NS: I think at this stage the impact shouldn't [matter], although there are some industries which used to have imports, raw material, from China. But then I'm sure they are readying themselves for a situation and majorly, I hope it doesn't affect it.