Indian economy better off now than what it was pre-pandemic: Nirmala Sitharaman

Fresh from presenting a record sixth Union Budget, Finance and Corporate Affairs Minister Nirmala Sitharaman sat down for an interaction with DH’s Arup Roychoudhury. 

In the first of a two-part exclusive interview, Sitharaman said that going ahead, the government would be more proactive on privatisation since the economy has now completely recovered from the Covid slowdown. She said that while global headwinds remain, the conditions are stable and strong on the domestic front. The Finance Minister also said that the Reserve Bank of India’s action against Paytm Payments Bank should not show the entire Fintech sector in poor light. 

Excerpts:

Minister, five years, six Union Budgets; you have had to manage the economy during a global pandemic, two wars which disrupted supply chains, spike in commodity prices and a tight liquidity environment. How do you look back upon this tenure?

Looking back, you can say that we are better off now, than when we entered into these years of global challenges. The biggest asset, the biggest strength, that India has, is a good, strong, clear-headed leadership. I fear to think how a coalition government or a poor, weak, visionless leadership would have been; it would have only made things worse. So the first thing I would think is a clear-headed and responsible leadership, which was able to put all the government's energy and capabilities together and take everybody along, particularly during Covid. And, the second is the collective energy and the positivity with which the Indian people faced the various challenges and worked to come out of it. That is something I appreciate and recognise.

One point of personal satisfaction has been India hosting the G-20 in 2023. And I was extremely happy that the first G-20 Finance Ministers and Central Bank Governors (FMCBG) meeting under our presidency was held in Bengaluru.

While India is the world’s fastest growing major economy, what are some of the headwinds you are wary of?

The headwinds that we see are global, essentially external to India, but which may impact us as well. There are those uncertainties which are collaterals of a war (Russia-Ukraine) which doesn't seem to end, and a second war has begun (Israel-Hamas). Also, there are huge threats for free movement even in open areas, like the attacks on shipping lanes in the Red Sea. So these are the big challenges whose spillover effects we cannot predict now: whether oil and commodity prices will go up, or whether transportation is becoming so threatened that insurance cover for them will not be forthcoming.

I don't think there are any domestic challenges which we cannot foresee. The usual thing is about the monsoon. Will it be successful, will it be enough or will there be a shortfall? The recent reports about El Nino receding give me hope that the upcoming monsoon will be a good one. 

Inflation has come down in many countries. What is preventing central banks around the world from pulling the trigger on rate cuts?

We need to consider the RBI as separate because they've proved in the last two to three years that they are not working in sync with the rest of the global central banks. For instance, the European Central Bank responds immediately to the call taken by the Federal Reserve. India has got its own understanding of what it has to do to keep an accommodative or a hawkish stance, and also provide clear forward guidance.

Globally, I think the central banks are interdependent. And, these are dollar-centric economies. So any change in the stance of the US Fed will influence decision-making elsewhere. So very highly dollar-dependent economies have to wait for the Fed’s decision to come through. But that does not mean the rest of the central banks don’t watch that space. The RBI has a proven record of how it has managed India's monetary policy. Also, monetary policy is not singularly responsible for inflation management, it has larger macroeconomic implications.

While the recent interim Budget steered clear of populism, many were expecting something on an urban employment guarantee scheme, and some direction on streamlining the GST. 

Well, It is for the July Budget to look at what is that one scheme necessary for a specific purpose. I don't think I've had enough consultations or inter-departmental meetings, or have put my finger on certain particular areas, in which definitely some policy changes will have to be made. None of that was done this time. This was very clearly meant to keep the government going for the next 3-4 months, so that by the time the new government comes, no committed work is halted. It was also to give a slightly forward-looking guidance and indicate the pathway in the next Budget and probably the one after that also.

The Karnataka Chief Minister Siddaramiah has said that Karnataka does not have the means to be a $1 trillion economy due to the Centre’s policies. What would be your message to the people of the state?

From my childhood I've stayed in Udupi. I have relatives in Bengaluru. The people of Karnataka, as far as I know, are very nice, warm and hospitable. They are proud Indians and they sing the Karnataka anthem with as much pride as our national anthem. They are very strong in their beliefs and proud of their contribution towards India. Bengaluru’s contribution to India is remarkable. The world knows about companies like Infosys and the growth of tech in this state.

I think the people of Karnataka know that every region of the country has to develop. I don't think the people are raising these issues. It is for the sake of politics that the chief minister is raising these issues.

While the banking crisis is behind us and banks have strong balance sheets now, the RBI has warned about unsecured retail lending, and the profligating of fintech operators. Recently it issued directions against Paytm Payments Bank. What are your views?

The RBI acting on a particular company for lack of diligence is one thing, but that doesn't mean that we should question the entire FinTech sector. This idea of a disrupter or innovator running his/her own business, and therefore, not being so competent to take care of marketing, branding or compliance is a worthy thought and you can always be concerned about that. But I don't think that the FinTech sector is so naive. It is conscious of the compliances and the dynamic nature of regulation, whether in India or abroad. So one particular incident doesn't have to make us sit up and say that sector is like that.

On the borrowing front, the government and the RBI have held meetings periodically on pushing lending business to NBFCs, which in turn, borrow from the markets or public sector banks. This issue has to be carefully monitored.

Prime Minister Narendra Modi has been a proponent of privatisation. But after Air India, nothing much has happened. Plans to privatise Concor, Shipping Corp and others are pending. Why have we gone slow?

It is very convenient for the media to ask this question without stating that for two years, we had Covid, and then the recovery. So two-and-a-half of the five years are gone. We have not been irresponsible. There are companies in the privatisation pipeline, and they will happen. In the meanwhile, we're making sure that their valuations rise. 

So going ahead, can we expect the government to be more aggressive on privatisation?

Yes. But the point is, you're talking of a period where aggression would have been stupid during Covid recovery.

(Watch out for the second part of the Finance Minister’s interview in our Monday’s edition, where Sitharaman talks about the Finance Commission and devolution of taxes, and responds to the Karnataka government’s charge that it has been deprived of funds).