‘India will be the world’s third largest economy in Modi’s 3rd term’, says FM Sitharaman

Two days after presenting her sixth budget, an interim one ahead of the 2024 national elections this summer, Union finance minister Nirmala Sitharaman sat down with journalists from Hindustan Times and Mint to discuss various aspects of the interim budget, and the state of the economy.

Referring to the four caste groups she mentioned in her speech on Thursday — women, young people, farmers, and the poor — and repeatedly evoking the narrative of a Viksit Bharat (developed India) by 2047, the finance minister spoke about her government’s immediate and long-term priorities.

Criticising the United Progressive Alliance for wasting a decade (2004-14), acknowledging the challenge of Covid-19, where India steered clear of the playbook of western economies that were pumping cash into the system and, instead, launched a large campaign built around enterprise and self-reliance, and speaking of the clear-headed leadership of Prime Minister Narendra Modi, Sitharaman answered a range of questions about the budget as well as the economy. Edited excerpts:

The Modi government put the Indian economy on the growth path in its first term. In the second term, it made the economy more inclusive and focused on a saturation of welfare services. What should people expect in the third term?

The Prime Minister has already said that in the third term we will become the world’s third largest economy. So, everything that is required to do so that we reach the third biggest economy level, will be done. That’s the third term. But you may want to add that the second term saw a pandemic like was never seen before. Despite that, with reforms and with every inclusive measure the economy has been brought to the level of fifth largest (now).

Multidimensional poverty numbers are impressive. Even the IMF is saying that India is a bright spot. But, private consumption, which is roughly 60% of GDP, the single biggest chunk, that according to the first advance estimates is likely to grow only at 4.5%, 4.3%. Does that concern you? What is your assessment?

It’s also a reflection of the economy actually going through a lot of shifts, changes, the paradigms are themselves being challenged. I take a very simple example; rural workers move to urban areas and during critical seasons [sowing or harvesting] they go back to their villages. Now, since post-Covid, many of those who had been in the urban areas and acquired some kind of skills — each at his or her own level — are saying that the rural areas are giving them [similar] opportunities to utilise and monetise their skills. Many of them have not even returned [to urban centres]. If that is happening, are we able to measure that? Are we able to take into account such changes? So, I think we are at a very, very transitory stage.

Investments are coming in certain areas, but these are highly efficient and technology-driven industries such as AI, which may see job opportunities shrinking. So how to address this unemployment issue?

You have to address the unemployment issue, no doubt. But, do you think jobs are only there? First of all, AI also requires human intervention. It is not going to operate on its own. Second, on investment; it has to happen and if it brings jobs together, it’s very well. But at least when investment comes, as you say, it may not give many jobs, but those (businesses) are getting located in an area. They are going to create indirect jobs as well. So, it is a layered debate. You want investment, you want jobs, and then you want meaningful jobs, and then you want rewarding, highly rewarding jobs. These are layers to be addressed.

There has been a structural transformation and there’s also been significant transformation in the rural areas. The problem is that we’re not able to measure it properly. We also don’t have surveys to measure it. But anecdotally, for instance, we know that even for services in rural areas, there is demand that was not there previously. Is there a plan to have better data? That will really help policymaking get sharper.

We need to have a lot more comprehensive and credible data which captures these kind of changes. One improvement in the labour force surveys, which is coming out of the labour department. I think it’s a vastly improved version. Which gives you a fairly good picture, but again that is only formal sector labour. We have not captured the informal sector yet. So yes, I agree the requirement for credible, comprehensive data can never be overestimated.

So, you’re saying a structural transformation is taking place. PLFS [Periodic Labour Force Survey] numbers are showing that the proportion of people in agriculture is actually increasing.

That’s why I’m saying now agriculture and related activities are themselves seeing a lot of significant adaptation to changing methods and practices. The activities of Common Service Centres (CSCs), which we established, are now seeing more mails and courier entries. Post offices in the rural areas are doing courier entries. People are sending products out, samples out. So, I think, we are at a wonderful stage, the cusp of a big shift in the way in which agriculture, the rural economy, is operating.

But, then how does this square up with MNREGA demand, which is also increasing?

It’s not increasing everywhere. At the same time, it will increase also because there are always seasonal activities. When such activities are at a low, names get added. In the last 10 years, this has become one of the ways in which you can earn.

But equally, we’ll also have to notice that in some states it is being targeted as one of the resources coming from the Centre, nevertheless. The CAG has pointed this out. We need to understand what actually is happening on the ground on MNREGA. We’ll never deny even one penny. If it is required, yes you will get it. But, who explains the malpractice? Who explains to you that people who don’t even exist are getting the job cards. So, we need to be clear, if we are using these as indicators to measure economic activity, you can’t equally tell me that MNREGA demand is going up and at the same time tell me that rural demand is in some cases increasing and in some cases not increasing.

Shifting to capex, is there a limit to the absorption capacity of the economy?

The media, in the last press conference, asked me why is the growth in capex tapering? Meaning, are you slowly reducing the capex commitment? I gave a factual answer that it was proportionately increased on a higher base… 11% [more] from a higher base. 11% is quite big, to ₹11.11 lakh crore… 3.4% of GDP.

Sure, over the last four years, capex has trebled and the government hoped that private investments would crowd in. In this budget, you said you’re beginning to see the signs of this. Do you think they will come to the party finally?

Again, this whole thought of new projects, sunrise sectors, where newer markets are available, where the world is shifting towards something like renewable energy, where incentives like PLI [Production Linked Incentive] are being offered…; so, the investments are coming into those areas. There’s a clear sign of that. Private sector’s investment now, you can see in all these areas. But if you search only in cement and old steel factories, no.

At one level, from the outside, it is clear that this government rebooted the economy during Covid-19, pushing through some structural changes.

In your budget speech, you said the government would focus on the eastern region. You also named those states. There are certain states among them that are hostile to anything done by the Centre. How will you take them along?

We’ll have to tell them, we’ll have to work with them, to say that this is for bringing great activity into your economy, it is going to help India to grow faster. We will engage with them.

Are you seeing incremental gains from the reforms in corporate tax (rates were reduced in 2019)?

You’re talking about the period when we had Covid. We had just given the tax concessions then, reduced the tax [rates]. And the banks themselves were coming out of the twin balance sheet problem, which we inherited. So, how many asks would you have of an industry which lived through that period? So, I think, the debate will now have to be, now that they have come out of the twin balance sheet problem, now that banks have also come out of their twin balance sheet problem… Now, what? Rather, in 2019, you got a corporate tax reduction? Or that the twin balance sheet problem was (back in) 2014. It cannot be answered like that. It took this many number of years for them to come out of these issues.

The NPA problem of banks is over. India is growing fast and normally, when any economy grows, you need a couple of really big banks.

By 2019 itself, we had amalgamated merged banks to make them big. I quite agree with you that we need bigger, larger banks, we need more of SBI-sized banks in India.

Our debt market is still not commensurate with what the third largest economy in the world should have. It needs to be deeper, and we need more long-term sources of funds. You need a more efficient debt market. What are your plans to deepen the debt market?

Actually, since a couple of years ago, there’s been a lot of work together with the RBI and Sebi in creating such an environment. And also bringing in more asset managers into this country. To deepen the bond market, I’ve had conversations with Sebi. They’re doing quite a lot. The RBI itself has come up with its own understanding of how both for government securities and private securities, private borrowing will be able to have a wider market. They’ve created some kind of platforms through which people can access large (sums). So there’s a lot of work which has happened. I think this JP Morgan listing (India will, from June 2024, be part of JP Morgan’s Government Bond Index-Emerging Markets) is also something which is going to give us access to cheaper, easier money. Because once you’re listed, it’s almost as if automatically, the money comes in.

Are we going to see any more new Production Linked Incentives (PLIs) or are we done in terms of new PLIs for manufacturing?

We don’t know yet. Some people want [it], some people have not asked. Government has not taken a call. Let’s see.

How have PLIs performed?

Of the given PLIs, I think some of them have performed very well. Some others are alright. A few are yet to take off.