What is your message to boost investor confidence?
In today’s world, any discussion or debate across various forums on development, economic growth or political stability, attention of the world is automatically attracted towards India. Expectations from India are not only from within the country, but even in the context of global growth and development a lot is expected from our country. At the same time, unprecedented mandate given to our government during the recently concluded election in the largest democracy has further raised the hopes and expectations.
Performance of our government during the last five years has shown the scale, speed and direction in which we work. This has given a new benchmark for the country to judge the performance of the government. I consider it a very positive development that there are a lot of expectations from us even though we have not yet completed even first 100 days of the new government.
Strong and sound economic fundamentals coupled with stable government with increased majority — I see these as the reasons for this kind of high expectations. I would request experts to see this government as a government in continuity from last five years, and not in isolation. Similarly, with respect to economic policy, I would request people to analyse the impact of two budgets together — one presented in February and another one in July 2019.
It has been a common practice established over the years in our country to judge a budget based on what it has given or provided for specific sets of people and sector; based on what individual groups get, experts from those groups would analyse the budget. But now, time has come to look at the macro picture of how the budget will propel our country forward and what it will contribute towards world growth, rather than the micro picture of just ‘who got what’. I understand that this would mean a paradigm shift from the conventional thinking; but I am sure that in the coming months and years this aspect would find its place in intellectual debate.
Economic pundits may analyse the performance of last five years which would give an indication of our commitment and delivery. Our government has proved that we are fiscally responsible, we have kept the inflation under tight control. It has good relations with all major economic powers. Interest rates have fallen. Reforms like Goods and Services Tax (GST) and Insolvency and Bankruptcy Code (IBC) have been acknowledged to have benefited the economy. Logistics have become much more efficient. Stressed and stalled assets are getting resolved. Infrastructure is being built at an unprecedented pace.
I consider entrepreneurs as India’s ‘Growth Ambassadors’. I want to tell them that our government will leave no stone unturned to make India a better place to do business in all aspects. We want entrepreneurs to get better productivity and better profits, we want our industries to grow in speed and scale, we want our businesses to get access to bigger markets, both at home and abroad. We want our investors to earn more, invest more and create more jobs.
Viewed in a global context, investors can be assured that India is the best destination in the world.
In the last term you implemented broad structural reforms such as the GST and the bankruptcy code and ease of doing business. However, attaining the $5 trillion goal will require bolder steps. What are the other measures that the government has in mind?
Let us, for a moment, step back and evaluate how big a reform GST was in a complex country, plagued by reform inertia for decades. It set in place a process of formalisation, which is irreversible and self-sustaining. Through IBC, we sent a message that entrepreneurial failure is neither fatal nor final. We put in motion an exit mechanism which is a win-win for the creditors, the workers and the market.
Setting higher goals and objectives and achieving them had been the hallmark of our government during the last five years. Let me take you back to November 2018, when the then President of the World Bank, Mr Jim Yong Kim, commended India’s ‘historic rise’ in the ‘ease of doing business’ rankings. He said that it was “remarkable that a nation of over 1.25 billion people has achieved a rise of 65 ranks in a short period of 4 years.” This kind of performance gives us further confidence in setting still higher goals. Five years ago, who would have thought that:
India can implement GST;
India can achieve status of an open defecation free nation;
India can provide electricity connection to all households;
India can provide access to clean cooking to more than 8 crore families;
India can provide health insurance cover of `5 lakh to more than 10 crore needy families.
We have laid a solid foundation for high, sustainable growth over the long run. India has broken the perception that developing countries cannot grow at a higher rate for a reasonable period without getting into the problem of overheating, that is, higher inflation. During the past 5 years, India witnessed the highest average growth rate with lowest average inflation. All the macro-economic parameters such as current account deficit, fiscal deficit, inflation, etc. were brought down to acceptable levels. This helped in restoring confidence in the economy and witnessed unprecedented FDI inflows.
Indian economy was used to growing in a particular manner for almost 45 years after Independence. From 1991, the country tried to change gear and ventured into a different philosophy of growth and development. There was a beginning, but unfortunately due to political instability it never gathered pace which was required to uplift crores of poor people from their state of destitution and deprivation. Thanks to the highest rate of average growth during the last 5 years, we were able to bring crores of poor families out of this situation.
When we talk about economic growth, it means wealth creation for the nation. It does not mean more money into state exchequer, it means more money in the pockets of people. It is wealth creation which will lead to prosperity for all.
Experiences of last five years give me the confidence that this country and people of India have everything in them to achieve higher goals and higher objectives. I am confident that 1.3 billion people comprising millions of farmers, lakhs of industrialists, hundreds and thousands of young entrepreneurs and start-ups, women, through their collective endeavour, will take us there.
Through you, I want to motivate our industrialists to believe in the India story and in the long-term potential of Indian market. They should carry on their business and complete their investment plan without any confusion. I reassure all honest and law-abiding businesses of all possible support from our end.
The vision for the next five years is to have investment-led growth. We are targeting `100 lakh crore worth of investment in the coming five years. To achieve this vision, the government is working on policies to promote inflows from domestic as well as foreign sources. This would entail further liberalising our FDI policy, simplification of labour laws, further enhancing ease of doing business, power sector reforms, asset monetisation and asset recycling in public sector, and reforms in banking, insurance and pension sectors. While investment has to be driven by private sector, the government will do its bit to ‘crowd-in’. In undertaking all these reforms, the government will work with an open mind in consultation with all stakeholders.
Most MNCs are tweaking supply chains in view of the trade conflict between the United States and China. Experts feel that this represents an opportunity for India to attract FDI. Does the government have a strategy in place to attract such investments?
India today offers skilled human resources, rapidly improving infrastructure along with one of the world’s biggest markets. For anyone looking to shift base, India is an ideal location. There is no doubt that the ongoing events are creating opportunities for some economies. But our policies are not designed to get some short-term benefit out of transient disruptions being seen around the world. We are focused on improving our competitiveness through long-term reform measures. It encompasses steps towards improving our ranking in ease of doing business, tax reforms with lowering of tax rates and simplifying procedures, labour sector reforms to encourage formalisation and FDI-related reforms to further liberalise the investment climate.
The key story is about how the Fortune 500 companies see their production shifting. We would like them to diversify more, to do more production in India. We are constantly talking with these firms and understanding the difficulties that they face. We are very focused on creating the financial, regulatory, capital controls, taxation, labour and infrastructure environment to make it convenient for global firms to bring goods in a friction-less manner into India, run factories or service centres here, and re-export the resulting products. As an example, the GST will soon rise to the full ‘model GST’ treatment of GST-on-imports coupled with zero-rating of exports, which is the most export-friendly indirect tax structure.
The Indian private sector does not seem keen to invest right now. What what can be done to change this?
I do not think this is a one-dimensional problem. Indiscriminate lending of the past created excess capacity as well as NPA problems. While we have brought the NPA issue under control, there is a requirement of optimum capacity utilisation for the private sector to make fresh investment. This depends on the domestic and international demand. We are facing some headwinds on this. One of the major reasons for domestic demand being curtailed is the credit constraints. So, it is a vicious cycle, which is at its last stage.
In order to boost credit flow, the plan to recapitalise banks has been set in motion. Further, they are being encouraged to lend to Non-Banking Financial Companies. It is bound to improve availability of credit for the private sector and boost the economy while securing trust of the markets.
Also, the government is fully behind the idea of ‘minimum government, maximum governance’. Strategic disinvestment of select Central Public Sector Enterprises (CPSEs) remains a priority area for the government. This would open up many new sectors for private investments to chip in.
We have ensured clean lending and sustainable growth and I think that it is just a matter of a short time before we see the private sector booming again.
With capacity utilisation crossing 75%, we would see growth in investment from private sector in the coming months. At the same time, the government will continue to aggressively push public sector investment and accelerate the execution for these projects to ‘crowd-in’.
We have seen many domestic and international companies across sectors who are seeing growth in the coming quarters and are investing. Various ministries are in continuous dialogue with different industries to enable the private sector to grow at their full potential. We are willing to go as far as needed to ensure that ‘animal spirits’ are revived and our entire private sector is bullish.
The years between 2014 and 2019 saw a sustained upsurge in FDI. Is the government contemplating further measures to boost FDI?
Even when global value of FDI inflow is declining, we have maintained steady level of about US $65 billion of FDI inflows. The years between 2014 and 2019 saw a sustained upsurge in FDI. India received US $286 billion worth FDI between 2014-15 and 2018-19, which is a 50% increase over the previous five years. The budget has envisaged a rise in FDI limits in certain sectors such as insurance. The bulk of FDI decision-making by global companies is no longer influenced by FDI capital controls that India has, as our capital controls against FDI are gone in most sectors.
Now the questions are about India as an operating environment. This involves financial regulation, tax policy, tax administration, the behaviour of regulators, predictability of policy, quality of infrastructure. We are constantly talking to MNCs and understanding what difficulties they face while operating in India. We have addressed many of these issues in the ease of doing business effort and the balance of this agenda is the area that we will now focus on.
We have also announced in the budget a scheme to invite global companies to set up mega-manufacturing plants in sunrise and advanced technology areas such as semi-conductor fabrication, solar photo voltaic cells, lithium storage batteries, solar/electric charging infrastructure, computer servers, laptops, etc. and provide them investment-linked income-tax exemptions and indirect tax benefits.
India and US appear to be talking past each other on trade issues. What do you think is the way forward?
India and US are mature democracies with various forums of engagement on trade. Our countries are at different stages of development with different strengths and varied domestic market requirements. We have had pretty constructive dialogues in the last few months on various facets of trade and commerce and we are positive it will result in a win-win situation for both countries.
What is the government doing to boost exports?
Exports form an integral part of our growth model. This is where ‘Make In India’ is making an impact. Today, for example, some of the coaches of metro trains running in Australia were made in India. It is earning a good name for our country there!
Part of our vision to double farmer income by 2022 is driven by a focus on increasing exports. We are not looking at farmers as just producers but as potential exporters. In this, value addition by way of food processing will play a big role. To strengthen this, we have already set up many mega food parks, and many cold chain projects are being set up.
We are not looking to boost exports by incentives only, we also want to improve the competitiveness of our exporters. Various measures taken to improve the ease of doing business have resulted in an easier regulatory environment, and we are striving every day to make it better. Lower interest rates, improvement in logistics sector and simplification of GST are some examples. The new automated refund system for GST will help exporters.
The economy is experiencing a slowdown right now. The budget has taken some steps, can we expect more measures?
The budget is neither the beginning nor the end of our work in economic policy. My team and I are thinking about these issues all the time and acting on them.
The Budget announced `70,000 crores capital in public sector banks to boost credit growth in the economy. Ideas such as asset monetisation, asset recycling and a continued focus on strategic disinvestment are aimed at raising funds for public capital expenditure. These measures will boost growth and crowd-in private investment soon.
The issue is not merely about lowering of policy rates by the monetary policy committee, but also about the cost and availability of credit. The transmission of monetary policy is important. We are working closely with the Reserve Bank and the banking system to remove blockages in the flow of credit, especially to small and medium enterprises. We are also looking to remove all delays in government payments and tax refunds so that cash-flow in the economy revives.
Surplus liquidity in the international financial market provides an opportunity to tap capital at lower rates. This makes lot of investment economically viable. All of us will agree that India needs investment in infrastructure. We remain committed to invest record amounts in urban as well as rural infrastructure, which shall lead to ‘ease of living’ as well as create more opportunities for people.
Amid a sustained crackdown on corruption, there is also concern about some actions by investigative agencies and tax authorities. What steps are being taken to allay such fears?
For the vast majority of income-tax payers, considerable progress has been made—today refunds are credited to bank accounts automatically within weeks without any need for the taxpayer to go and pursue it with the officer. This has benefited literally crores of people and many have appreciated this. We are starting faceless assessment of income-tax return. This will eliminate human interface to a large extent.
For tax evaders, we gave an amnesty scheme before demonetisation. Those who failed to use it may have suffered. If we look at the number of searches in one year, it is not even 1,000. During 2017-18, number of groups where search operation took place was 582, and in 2018-19 it was 980. When you see this number in the context of total number of tax payers, it will not be even 0.02%. So you can understand how scarce these actions are.
However, it is a fact that some black sheep in the tax administration may have misused their powers and harassed taxpayers, either by targeting honest assesses or by taking excessive action for minor or procedural violations. We have recently taken the bold step of compulsorily retiring a significant number of tax officials, and we will not tolerate this type of behaviour.
I have also instructed the revenue secretary to come up with measures to ensure that honest taxpayers are not harassed and those who commit minor or procedural violations are not subjected to disproportionate or excessive action. The post of member (taxpayer services) will be activated in both the CBIC and CBDT by posting a very senior officer for this charge. They will be responsible for improving taxpayer services and will keep a watch on grievance redressal.
In order to reduce litigation and to effectively reduce taxpayer grievances and litigation, the monetary limits for filing of appeals by the tax authorities have been increased significantly. This limit used to be `25 lakh for appeal in Supreme Court, `20 lakh for High Courts and `10 lakh for income tax appellate tribunals. In the last one year, these limits with respect to income tax cases have been increased to `2 crore for SC, `1 crore for HCs and `50 lakh for appellate tribunals. This will reduce pendency in higher courts and will allow departments to concentrate on litigation involving complex legal issues and high tax effect.
GST was a big reform and we have seen constant tinkering and changes through the last 2 years. Are you satisfied with the evolution of the GST system?
GST was a massive reform of a scope and size not seen anywhere in the world. When such huge reforms involving all states and Centre happen, transitional and teething troubles are inevitable. Compared to the experience of other countries with even smaller reforms, our record is outstanding. But my nature is that I am not easily satisfied. We must improve the system and reduce cost of compliance. Streamlined procedures for return filing and for refunds are being introduced this year. Once these are fully rolled out there will be a substantial easing of compliance.
There were some transitional issues. Many have been sorted out. I know that some remain. I have asked officials to work through the GST Council to sort out the remaining pending transitional issues of genuine taxpayers and also remaining MSME issues on a priority basis, taking a sympathetic approach.
One aspect of GST, that is consumers’ benefit, has always been ignored while analysing the performance of GST in the country. Thanks to the rate reductions, one study points out that average middle-class family saves about `1,500 per year in the form of lower tax on their household expenditure. We need to encourage digital transactions, which would bring further benefits to consumers and sellers. We need to inculcate habit of asking for bills while doing any purchase.
Through your media house and other people from media, I would request to start a consumer awareness campaign which should also focus on digital payment and bill seeking behaviour.
You may not be aware, if a business does his transactions through digital means, even with a turnover of about `1 crore, he will pay zero income tax. With availing some of the deductions in the form of savings and housing loan incentives, even one with a turnover of about `1.5 crore would end up paying zero income tax.
You have been vocal about the legacy issues of indiscriminate lending, this has also resulted in stress in other sectors. Do you see light at the end of the tunnel?
Five years ago, we inherited a totally broken financial system. I had an option to let the country know the state of affairs in 2014 itself. However, I preferred to do the plumbing job silently as any such disclosure in 2014 would have shattered the confidence of investors who were looking at India with high hopes. I could have got some political mileage but it would have done severe damage to our future growth prospects.
The economy between 2008 and 2014 was like a body bloated due to water retention. Do we want that kind of growth, where money just exchanged hands and no sector actually grew. We are taking concrete measures for the long term and I am sure the results will be positive.
Today, we have not only pulled out our public sector banks from disarray, we have also made them stronger and functional. We have provided them the growth capital – almost to the tune of `3 lakh crore, we have ensured functional autonomy, through Bank Board Bureau – the human resource management has witnessed a paradigm shift, we have brought in private sector talent. We have reduced the number of PSBs through well charted consolidation process.
Due to all these measures, the credit growth has revived during the last one and a half years, but a lot more is still desired.
I appeal to all the bankers to meaningfully pass on the benefits of low inflation to borrowers. They should also make use of significant surplus liquidity available in the system at the aggregate level.
No growth is possible if bankers stop taking decisions on day-to-day basis. I reassure the banking fraternity that all their decisions taken in good faith with sound business rationale would not face any witch hunt.
Sectors such as automobiles, real estate and mining are experiencing slowdown. Are specific measures in the works to turn around the situation?
Demand in these sectors will revive with the acceleration of economic growth in the coming period. A continued focus on ease of doing business, availability of lower cost credit, stability in policy environment are key to sustaining long-term demand in these industries.
Let me start with the mining sector. The whole world has acknowledged that after the scams of the previous regimes the natural resources allocation mechanism was in need of a massive clean-up. We have done that successfully and put in place transparent mechanisms for these allocations. This was a disruptive reform and naturally the system will take some time to stabilise.
Notwithstanding that, in 2018-19, the mineral sectors apart from oil, gas and coal grew 9% in volume terms and double digits in value terms. Nevertheless, we are focused on the few problems identified in this sub-sector and are doing everything necessary.
We are focused on reviving the housing sector, ensuring sustainable growth for developers while protecting the interest of the home-buyers. RERA was a massive step in this direction. As a result of this step, trust in the market, which was in short supply due to the actions of a few black sheep, is returning. Further, as you saw in the budget, we announced many measures to stimulate the housing sector. Interest paid on housing loans is allowed as a deduction to the extent of `2 lakh for self-occupied property. We announced an additional deduction of up to `1.5 lakh for interest paid on loans for the purchase of an affordable house up to `45 lakh. Last year, we had also seen how the GST council reduced rates for under-construction housing.
These are all demand boosting measures. We have also come up with a model tenancy law, to further stimulate rental housing. The government is actively talking with the stakeholders of the housing sector to make the sector sustainable while making it profitable for developers and affordable for home-buyers.
On automobiles, the finance ministry has had a constructive dialogue with the industry. The slowdown is transient, accentuated by credit constraints, some regulatory changes and passiveness in demand. I believe that both demand and the industry will bounce back strongly and soon. I would like to assure everyone that India has a large enough market and big enough policy space to ensure growth of internal combustion engine (ICE) based automobiles as well as electric vehicles (EVs). There is no need to speculate about the growth of either of the two. We are in a unique situation where both ICE and EV based automobiles can co-exist, co-create and learn from each other.
We see a growing debate around data privacy, protection and its commercial exploitation. What are your thoughts on this issue and the economic opportunity it presents?
The way I see it, the profound impact that the domain of software and information technology had on India’s economy in the nineties, will be replicated by the domain of data and related ecosystems in India in the near future.
We must look at data as an opportunity. The massive amount of data being generated, stored and understood is creating its own huge ecosystem of jobs, companies and businesses around it. With its talented youth, growing economy, conducive government and massive market, India can become the hub of data science, analytics and storage.
Data privacy and protection is an evolving paradigm around the world. We believe that personal data protection for every single citizen is a must and we are in the process of evolving a framework for the same. We see Right to Personal Data in the Machine Intelligence Age in a manner akin to Right to Private Property at the dawn of Industrial era, as not merely a mechanism to protect but also as an enabler to spur commerce in ways we haven’t fully foreseen.
You have identified water conservation as big objective of your second term. Is your larger economic goal to reduce the dependence of the Indian economy on the monsoon. If so, how?
Your paper is linked to the economy, so it is natural that you are looking for economic angles on this issue. We are currently celebrating Gandhi150 and especially at such a time we should not forget his trusteeship model. Our model should be based on ‘Sarvajan Hitay, Sarvajan Sukhay’.
In our last term, we ran a huge movement for Swachh Bharat and focused on eliminating open defecation. There was an economic angle to that as well, toilets constructed gave jobs, etc but more important was the goal of building a healthy society.
We played a big role in the formation of the International Solar Alliance. We should not look at it from the limited prism of investment, this was a big shift to protect our natural resources. So, it would be a mistake to limit water to only the economic angle. Just like in increasing the forest cover we do not merely look at the economic angle, similarly in a large and populated country like ours, water conservation should be in the nature of the common man.
To take India ahead, economic steps are as important as behavioural change. When a farmer chooses drip irrigation, there is an economic angle of sale of sprinklers, etc, but more importantly water is conserved. Economic benefit of water saved is a natural byproduct.
Media publications like yours played a big role in making Swachh Bharat successful. I would urge you to similarly adopt the cause of water conservation and educate your readers about its benefits and importance, its impact on our GDP growth, decreasing malnutrition, decreasing diseases, etc.
Jal Shakti Abhiyan is not intended as a mere government initiative. It is a mass-movement, driven by the partnership of the Centre, states and the 130 crore people of India.
What was the government thinking behind the decision to withdraw Article 370?
I want to be clear that our decision on Article 370 is purely a domestic one. Let me tell you I have taken this decision after great deal of thought and I am quite certain about it and will take it forward for the benefit of the people.
You called for investments into Jammu & Kashmir during your address to the nation on Thursday where you gave a call to build a ‘Naya Kashmir’. How optimistic are you about this happening?
I am very confident of this happening. In fact, leading entrepreneurs have already expressed their interest in investing in Jammu & Kashmir.
In today’s world, economic growth cannot happen in a closed environment. Open minds and open markets will ensure that the youth of the region will put it on the path of greater progress. Integration gives a boost to investment, innovation and incomes.
Investment needs certain conditions: stability, market access, predictable laws being some of them. The recent decision on Article 370 has ensured all these are present and so investment will definitely flow, especially since the region offers investment opportunities in various domains like tourism, agriculture, IT, healthcare to name a few. This will help develop an ecosystem which will give better rewards to the skills, hard work and products of the people in the region.
Better avenues of education like IIT, IIM, AIIMS will not only give more educational opportunities to the youth but also give the region a better workforce.
Connectivity related projects like roads or new rail lines, modernisation of the airports, all of these are being accelerated. Better connectivity, better linkages and better investment will help products of the region reach across the country and the world, leading to a virtuous cycle of growth and prosperity to the common man.
