The Union Budget for the fiscal year 2019-2020 will kick-start the virtuous cycle of investments, said Finance minister Nirmala Sitharaman in an exclusive interview with
CNBC-TV18. Sitharaman presented her first Union Budget today in the parliament announcing several measures to ease liquidity in the financial markets and attract more investment in the economy. "I think the decision was taken after carefully watching the developments in the economy," said Sitharaman. The finance ministry has studies the problems during a consultation with stakeholders and has provided an A-to-Z solution to the NBFC crisis, she added, hoping that normalcy should be restored in the next 6-7 months.
Here is the edited transcript of finance minister Nirmala Sitharaman's interview with CNBC-TV18's Shereen Bhan:
If I may start by asking you about the decision to drop the briefcase because that has captured a lot of the headlines since morning. Was that your call?
Yes, my family’s call I would say because the colonial hangover was something which my people and I have been thinking about myself too. So we thought it’s a good occasion to get out of it and there it was.
You have laid out your vision for India achieving its ambition of becoming a USD 5 trillion economy but if I could address the immediate term issues first, I want to get your own assessment about the state of the economy. Do you believe that the measures that you have announced today will in the immediate term kick-start what you call as the virtuous cycle of investment?
I agree it should kick-start. I think the decision was taken after carefully watching the developments in the economy. We thought it was absolutely important to make sure on the one hand to ensure that those people who are literally somewhere in the nook and cranny of the country need the support through the direct benefit transfer (DBT).
Through the DBT because they benefit directly, they do not lose out on anything and through which money reaches their hand, through which consumption can be increased.
Again the tax planning, tax deduction that I have given for the purchase of vehicles is also something through which even as I explained during the budget presentation, if you were buying a house which the term loan lasts for 15 years, you are going to end up having at least Rs 7 lakhs worth of benefit for yourself. This is about affordable housing. If you were looking at a 7-year loan for a vehicle there upto Rs 5 lakh you are getting the benefit. So, the means of doing this thing about getting money to the hands of people actually is achieved through these very many different routes.
Similarly where we have very clearly said the public investment in infrastructure like the way it happened in last 5 years, will continue even now and the scope of it is not just roads, it is going to be Sagarmala, it is going to be inland waterways, it is going to be developing all the greenfield airports, also the brownfield ones, the second World War runways that existed, all that is getting revived, bring MRO into India and also making sure that investment for the sunrise sectors have been announced with a lot of incentives, these are directly going to benefit in terms of people getting jobs, getting real money in their hands and consumption going up. When such industries are being set up the core industries benefit indirectly because they will have to supplement each and every one of those investments, that is where I see this really addresses that issue.
Is that the roadmap for kick-starting the investment cycle that you have just articulated?
And the way in which we have addressed comprehensively after studying the developments in the NBFC sector, and during my stakeholder consultation here, I had very eminent NBFC leaders who were here very clearly highlighting the fact that you cannot have one problem attributed to the entire crisis. It could be solvency for some, it could be liquidity for some others, it could be just governance for third. So the sets of problems were varying for each of the NBFCs. That is why again because it is going to be indirectly funding the expenditure of people through the credit facility to that extent, we thought we should have an answer for the crisis.
Let me address the NBFC issue because as you pointed out that it is a problem which varies from a liquidity problem at one hand to perhaps the solvency problem on the other hand. In your own assessment, how deep does the problem run today, how concerned are you about it and can we expect more measures from the government? You have announced some today as policy interventions to deal with the NBFC sector, can more be expected by way of government intervention?
Even the some that I have announced today are critical sums making Reserve Bank of India (RBI) provide a window, giving a 10 percent sovereign backstop ensuring that the window reaches and also the pulling of assets they may not be tripe A class assets but still assets and making sure like the way I have heard during the stakeholders’ consultation for those who have a problem of liquidity make available liquidity but those who have a problem of governance or solvency, by moving the power for regulation, not just for regulation but also for resolution of the crisis, of the problem within an NBFC, we have sort of given a fairly comprehensive solution.
Some now, later is not the point. If I am extending this 10 percent sovereign guarantee for a period of six months, I would think immediately NBFCs will take this opportunity to resolve the crisis for themselves. If not, I am giving the power to the RBI to say, please resolve. So, in a way, I have given what I would think is A to Z solution, which a government staying where it is can provide. It is also now for the RBI and I understand some kind of notification has come already, so I am glad that the RBI is also at tandem working together in this matter with the government.
Do you feel that on the back of the measures that you have announced today and what we have seen from the Reserve Bank of India (RBI) by way of that notification that some of the pain may be alleviated and how long do you believe it will take for the NBFC issue to settle and resolve?
If I were to say something unpopular it would be the NBFC problem may have reached the peak and it is now only going to have to improve. That is not to say the problem is all over. It is clear to say that it had reached at a stage beyond which it may plateau or it will be coming down rather than going up with difficulties. So, I think with this measure, and with this response from the RBI, I am very glad that they have responded so quickly and well at that, the NBFCs will be speedily getting to address their problems themselves. So it should be in a matter of about 6-7 months I would think normalcy should be restored.
If you expect normalcy to be restored for the NBFC sector in the next six to seven months and you yourself in your speech articulated how they have been at the forefront of lending. Given that, all indicators at this point in time not just on the investment side, but more importantly on the consumption side, indicate a slowdown. So, what is your own assessment on that front?
On the consumption, side is where I for a minute elaborated although I was talking of NBFCs. It is necessary now to very clearly put money in the hands of people and consumption will increase if the monsoon is good. You are going to have agricultural activity picking up, people are going to have to purchase things and sooner after that the festival season will commence. Hopefully, with the monsoon doing its bit, Indian economy as regards consumption related problems should get over its difficulties.
Let me move the conversation to public sector banks (PSB) roadmap and what has surprised everyone on the positive side was the bank recapitalisation plan Rs 70,000 crore, the estimate was or the expectation was anywhere between Rs 30,000-50,000 crore. Why did you feel the need to do Rs 70,000 crore and our understanding is that not a lot is required for regulatory capital so most of this is going to be gross capital? Why the decision for Rs 70,000 crore for bank recapitalisation?
We wanted to make the message clear because we did not want a half-hearted way of doing recapitalisation that is one. Second banks are now looking at very clearly making up for what is not available in terms of which may not be the best option but I also that is why felt necessary to talk about the industrial capital, developmental capital financing, how we probably have lost out on institutions like IDBI doing the capital for development purposes. Now if banks are having to do that it had led to a lot of difficulties because of it. So we wanted to be sure that the banks understand that they have to use their funds generously between growth and their other activities. So that is why I wanted to be sure that we don’t give a half-hearted measure. Maybe institutions will have to be a lot more pruning themselves and getting ready to be lean and mean machines.
Do you mean the banks will have to prune themselves and be leaner and meaner?
Use technology a lot more and make sure that they are able to convey better service quality. I am sure that without the non-performing assets (NPAs) crisis the banks would have done it themselves, unfortunately because of the timing of the NPAs I think the concentration was more to retrieve what was lost and I did give out the figures of what has being retrieved effectively and I think in several speeches the Prime Minister himself has referred to it. So with that, if the technology is also used you don’t, unfortunately, spend your time retrieving what you have lost you are far better in organising your assets.
So the allocation to the individual banks will, of course, be merit-based but any other considerations that you will look at?
Not at this moment.
The decision as far as PSB consolidation is concerned, we saw that take place in the first tenure of the government and this is the stated intent and objective of the government. Is this the right time now to look at further consolidation within public sector banks?
I will have to take a call on that because as I said we have already reduced it now considerably and we have to see how best we can do it. It has a lot of dimensions which cannot be ignored whether it is geographical spread, whether the size, whether the efficiency and the liquidity that is available with them, the strength of the banks itself and so on. So it is not something on which overnight you can take a decision. A lot of work has to be done
But is it a priority?
We have shown what we have done till now we will have to see how it goes from here.
The decision on mobilising non-tax revenues and also on a case by case basis exploring the possibility of bringing down the government’s stake to below 51 percent. I understand that this does not apply to public sector banks or financial institutions but that is one of the recommendations that has been made by the PJ Nayak Committee which has been with the government for many years now? Maybe not now, but is that a road-map which you would maybe want to consider?
A: At this stage, I am looking at non-banking financial companies. Let us see as we go forward.
On strategic disinvestment and you have got a very aggressive target on mobilising non-tax revenue this time around. 50 odd laid out by the NITI Aayog, they were cleared by the cabinet but they did not go through, there were not eventually done in terms one, why do you believe that it will be different this time around?
A: I think what is important is to understand that the by the time the cabinet gave the approval in principle for that list of companies, there wasn’t enough groundwork done. Whereas now with that list which was cleared in principle by the cabinet committee on economic affairs (CCEA) will be now in our hands and not an unrealistic target has been set up. It is Rs 25,000 crore more than what was earlier mentioned. So it is possible for us to reach that target even with that list of CCEA approved companies. Air India, of course, is not part of that.
On Air India specifically because you also made a mention of the fact that you would like to review the foreign direct investment (FDI) cap for sectors like aviation, media and insurance. 49 percent of foreign carriers are allowed in the aviation sector. Is that up for review? What is up for review?
In that decision, we have clearly said we will review it but of course, we keep the sectoral limitations in mind. While a blanket approach may not help every sector. It’s up to the respective ministries to have their consultation with the stakeholders and take a call. So civil aviation will also go through that.
You were part or you are part of the mechanism that has been designed to look at the Air India disinvestment. How confident do you feel given the current climate that you will find takers and how soon do you believe that this particular transaction will take off?
I think we have had a review of what went towards that non-starter of disinvestment and from that, a lot of lessons have been learned. So it is not as if it cannot be sold. It is only to make sure that we frame it in such a way that the strength of Air India is clearly kept in mind as much as staff of Air India is also taken care of. So the lessons learned from the last time’s exercise which didn’t come to a logical conclusion will guide us this time.
Asset monetisation and asset recycling and in that context you also spoke about the need for foreign direct investment and drawing more of that into the country. What is the roadmap on both these fronts because again the NITI Aayog has been set up with a task of identifying these assets? When do you believe that in reality we will see this process take off?
The budget is for a year so it has to be something which starts moving even within a year. So once it starts rolling out… (Interrupted)
What do you see as the big challenges there, for instance, the recommendation being that why should BSNL hold on to towers when all private telecom companies have given up the ownership of towers in a sense. What is the thinking of the government in terms of the way that you want to address the issue of asset recycling specifically?
All these and more I suppose and each has its own uniqueness, if just the landholding is not the issue and then as if suggested why should they do this, why should they not be doing something else and so on; every such lesson is going to guide us to see how best --- we are not taking a one size fit all kind of an approach. We will have to see for each one as which is the best formulation to arrive at. Eventually, our understanding is that if we are doing it indeed do it right.
A lot of conversation happens around the fact and this has been something that the government has also spoken of, of unleashing the animal spirits for the private sector. You have had meetings with the private sector. What are they telling you about the constraints and do you believe that you have been able to address some of those and also the trust deficit issue because that keeps coming back to the table as a constraint that is holding back fresh investment?
I am not sure about the trust deficit because that is why I have given an open statement today in the budget on the trust deficit issue because we do not see them as any other than being part of the nation builders’ league. If companies will have an agenda to grow along with India, why should we have a hesitation? We do not see profit-making as wrong. We, in fact, see that they are the wealth creators for the country. Therefore, I tried very clearly to be open about how the government feels about India Inc.
Now a government stating it and stating it during a budget policy statement, should mean every word of what is said, but other than that if there are issues related to ease of doing business, other than that if there are issues about the way in which they are treated, whether it is by income tax or anybody else, these are issues that are addressable; these are issues that we can take care of. So the non-performing asset (NPA) issues have also been addressed in such a way that it doesn’t hurt the industry but of course wrongdoers cannot be left free without action.
The decision to tax what is now known as the super-rich, the decision to do it by way of a surcharge and not a new tax slab because - a) the surcharge goes into the central government’s coffer, it is not shared with the states, so is that the reason why you decided to go the surcharge route and b) if the government has always maintained that it wants to incentivize and reward those who are compliant then this is the lot that’s compliant so you actually penalized the complaint?
I do not think I will look at it like that. I am taking an example which may not necessarily address what I want to say. It is not as if we are doing nothing for industry and then asking them to share their responsibility – that’s why I did make in concluding remark that its time that all of us also thought of our duty to the country.
If in this country there is yet a lot to be done, I agree, but if in this country you are here doing business and earning well. Shouldn’t you be contributing indirectly, some of the government’s flagship programme, after all, we are taking care of the poor, after all we are taking care of the health of the poor, after all we are doing things for common, infrastructure which you use as much as a fellow who doesn’t have any resource to use. So the justification is rights and duties, justification is 'jan bhagidari' and that is why I think it was important for us to go ahead with it. I do not think it should be taken in a negative spirit, for instance when I talk about GST, when tax is getting reduced for the commodities which are produced in India, for manufactured goods that are produced in India, services that are produced in India; Rs 94,000 crore have been given as benefits by the reduction in tax. Does it not benefit the super-rich, does it not benefit the manufacturers. So it is not as if the government is giving where it has to give but at the same time all of us have a duty to perform.
To believe in itself and start moving. The hesitation which is in the minds of the people should not be there because here is a government responding to every bit of what they want.
What is the single biggest risk that you foresee for the economy today?