Finance minister Nirmala Sitharaman says a “deeper, wider and open-minded” discussion is required on GST compensation that states are set to lose this year under law. “It is just not that the Centre has stopped the GST compensation extension,” she tells Deepshikha Sikarwar & Bodhisatva Ganguli in an interview. The government will look at taxes on fuels if prices shoot up, she says. Edited excerpts:

Some analysts feel that the RBI may be behind the curve in raising rates. What are your views?
These are judgements that observers can make. Are they in a hurry to make these or should they be waiting for some time to assess if the decision by the MPC (monetary policy committee) is right, or they (RBI) are behind? I think, between the government and the RBI, there is an understanding that we have to be watchful of what’s being done by the US Fed or the ECB (European Central Bank). This mindfulness and watchfulness of what is going on has been well understood between us and the RBI for nearly 6-8 months. Therefore, the calls that we are taking — MoF (Ministry of Finance) or the Reserve Bank on its own. The RBI is seized of what is in the economy in terms of liquidity and exchange rate fluctuations. I don’t think I will jump to a conclusion. Two of us are seized of the matter and lessons of the taper tantrum have been more than once read through. We shall avoid mistakes of that kind.

If inflation doesn’t abate, there is a fear that the US Fed may tighten aggressively, and a similar situation may play out here as well…
I understand your observation that the US Fed is behind the curve given that the US economy is, or the European economies are, having an inflation unseen in 2-3 decades … in the case of the US, the last four decades. Their complexity is vitiated by interest rates being absolutely rock bottom or even negative for a long time.

And just about probably when they were going to correct came the pandemic. Now, their course correction is a slightly different exercise from what we are doing here. We are looking at interest rates that have never reached that level ever. Second, the pandemic, and for a country that has less fiscal room. Now, revenues have improved; you’re looking at a situation where actually the bottom layer doesn’t suffer by any quick action. Inflation is not much beyond the band that we should be considering. Yes, it keeps going up and down but it’s coming down when we’re taking measures and we have to rein it in there when it comes down. So, the picture there and the picture here have different colours and hues.

The ways in which we have to handle, it will have to be keeping those differences in mind, not exactly reflecting the steps that they’re taking. But, of course, can’t suffer for the mistakes they may make.

There are apprehensions of a sharp rise in fuel prices after assembly polls. Is there a cushion on your revenue side to undertake another tax cut to provide relief?
I will have to see how it goes. This is not to say it’s not important. The composition of the CPI (consumer price index) basket and the impact of fuel in it is also something which I would want you to study, because repeatedly there are these arguments that fuel spills over onto the economy because of transportation of food and also the logistics. This is something that I want you to study. We have to bring in certain other factors because food, which is going to the poor, is subsidised. Public transport is subsidised very clearly. So, this is one side of this story. The other, of course, is the composition of fuel in the CPI basket. You will also notice that particularly in the last one or two years, we are noticing a not-so-parallel path between the WPI (wholesale price index) and CPI. It is the CPI which affects my consumers. So, this is a very complex, layered issue, and to peg it only with the fuel price will mislead us.

Equally, it’s the oil marketing companies which determine the price based on the 15-day average of what prevails outside. You had very big hikes in prices globally because of supplies being contained. The production is not increasing at all. It came down during the first period of Covid because all countries came to a halt. Now to get it back to where it was, there is a hesitation it seems. So, I would think we’ll have to look at it from various angles. So, we are interested in bringing the CPI down. We are interested in having essential goods at an affordable price but is that only done through fuel is also something we will have to see. That’s not to say I won’t consider …

Is green inflation an issue for India?
It will be, if not now. At the autumn World Bank meet I did say that I’m concerned about it because of the transitional energy requirements, which require a lot of investment. We did make an announcement in the last budget, not just this one. We need to invest in hydrogen. We need to invest in the storage of renewables. You also need quick fix natural gas, which is now going through a lot of ups and downs in terms of supply and price. So, the transition energy exercises that all of us will have to do to keep up with the commitments, also that we’ve given, requires a lot of investment.

Immediate issues are, how do we meet it, the investment requirement and also the immediate requirements of natural gas, renewable energy. So, there is not just a lot of sourcing of it, not just pricing of it, but also the transactional elements of it.

In your post-budget meetings, you asked the industry to seize the opportunity to invest. What’re they saying?

They agree with me, but beyond that, I have not heard anything. They agree with me and they also say yes we are in it, which is very good to hear from their side. I strongly believe they will come in. I don’t see visible or apparent hesitations.

Many sectors are yet to reach 75-80% capacity utilisation, the threshold when they start investing…

I’m not sure that is the case in many, maybe in some. I’ll take this example because I’ve been talking about it earlier. The cement capacity that lies in South India is actually being fully utilised. They’re also ramping up their capacities, but they also have a problem which has to be fixed. There’s a lot of cement being produced in the South because the raw materials are available there.

The government has placed a lot of importance on infrastructure spending. The sector doesn’t have to worry about, will there be demand if I expand capacity. But from the South, for cement to reach middle India or northern India, logistics costs are absolutely humongous. There is a problem of structural obstructions which we will have to address.

Is it time for GST rationalisation?

I really appreciate the GST Council. It has been repeatedly said that it’s time that we look at it in detail. That’s why when we took up three or four issues, it was decided that not just these three or four issues, but overall look at where we started when we launched GST, when the revenue-neutral rate was about 15%. Neutrality has come down to 11%. So, it is actually affecting the revenues that you can otherwise generate without hurting. And, therefore, rate rationalisation is something which the council thought will have to be comprehensively looked at. That’s why they’ve now got a group of ministers looking into it. Once it submits its report, I will take it to the council.

You could have a Ukraine tantrum. What are your views?

I think we have made our stand very clear that we want a diplomatic solution to it, particularly as the economies are coming off the pandemic. We cannot afford a crisis in hand. I look forward to having a solution in hand, a quick, diplomatically settled solution.

Several political parties have promised freebies in state elections, such as free power. As a custodian of the country’s finances, what is your view on this?

From 2014-15, with the UDAY scheme, the Centre came in to help the state discoms to help them transition from red to where they could pay their dues. That was the first attempt. The principle being, we want to help the state discoms to get over the backlog and have a professional approach to buy and sell electricity. Under the Atmanirbhar package, we said we will allow additional borrowing if you can install smart meters. Even in this budget, we have said that. We are not stopping anyone from offering a freebie, but make a provision for it in your budget.

Where are we on privatisation of state-owned banks?

We would be taking it up. We made a commitment in the last budget. Banking is part of the strategic core sector, which means the government will be still doing the business of banking. Which means a bare minimum presence will be there and I’ve also been saying that India needs several more banks like State Bank of India.

The attempt is to be in the banking sector — banks coming together to create larger banks and making sure that the Indian economy is serviced by them in the size and scale that is required. First thing is that the ‘prachar’ (propaganda) that goes on, that this government is going to sell off all its banks. We have already said that banks are part of the core sector. For those two banks we have not named, but said we will go towards privatisation, we will do it.

What is your view on reservation for locals in private sector?

It is also for each of the states to think about it. Ultimately, the economy needs peoples’ movement. People from different areas bring different strengths. But that said, it is up to the states to understand this.

Privatisation of PSUs continues to face legal challenges, for example Hindustan Zinc. What is the government proposing to do to provide comfort to bureaucracy?

Yes, because that was picked up again. Certainly, that gave the sense of uncertainty and a hesitation in the bureaucracy saying that legitimate policy-driven decisions would now be questioned. But we are actually sitting with the bureaucracy to speak to them and to see that it is all being open and transparent, policy driven, when there are GoMs (group of ministers) which are also after the bureaucratic-level decision-making to support a decision.

There shouldn’t be hesitation if there is political support based on a policy. So that’s now actually post this Hindustan Zinc matter. We have spent a lot of time explaining it to the bureaucracy that they should not hesitate because we are going as per the policy and there are no individual discretions which Prime Minister Modi has ever entertained.

On the NSE matter, was Sebi behind the curve?

The government is very keen about the perception among investors, about institutional credibility and opaque practices. And, this (NSE issue) is a classic case of absolutely opaque, discretion-based decision making beyond the realm of law. I am looking into it to see if Sebi has had enough application of mind in dealing with this, and post application of mind, have they taken adequate corrective steps. Did they tell the NSE at that time about what went wrong? Has Sebi taken the necessary punitive action?

Is there a need to further strengthen the regulatory framework in view of the recent events?

I am always in favour of strengthening the regulatory framework without making it suffocating. But even with the existing powers to regulators, use them fully, use them timely and use them to make sure that the bite of the regulator, when it is required, is adequately felt. Unless that is done, any further tightening can lead to suffocation, but not produce the necessary result.

So, I am strongly of the view that even with what is existing in Sebi, even with the regulatory powers they are vested with, have they handled this, as I said, adequately, properly, sufficiently? And my worry is the perception outside is probably that they have not. I’m not saying it’s my view. I need to see it. And the interest of the government is to not weaken any institution. The NSE after all is a vibrant exchange. The NSE after all has had exponential growth. The NSE is also seen as a place where a lot of global action can happen being located here. We can’t do anything which is going to hurt them from the point of view of their image or their perception. But yet, how did the NSE look the other way when things were not really happening transparently? And, how did Sebi handle it? Was it sufficient? These are questions in my mind. We don’t want to undermine any institution … Be it the NSE or be it Sebi.

Is the crypto legislation on the backburner in view of India pressing for a global framework on these products, or will these go together?

Our framework or our legislation is not on the backburner. As I said, the consultations are very critical for me to be sure that I get everybody’s views on board, irrespective of what the final call we are going to take. Yes, it’s right that we need global action because of the technology not respectful of any national boundaries or else. The Prime Minister himself has spoken that this global action may be required.

But, we are not behind the curve and on the job. If you ban cryptos, the only way you can enforce it is by criminalising it. This would mean that cops would enforce it. How desirable is it to create another criminal offence? I would not be going in for elaborate consultations if I had made up my mind whichever ways. We want to have a discerned decision. Consultation is going on. Isn’t that a legitimate concern? It is a legitimate concern.

On central bank digital currency, will anonymity be built into the currency?

The RBI is working on it. Even on these central bank driven currencies, there are quite a few issues … of the technology … is it going to be used just for the wholesale transactions or also for retail. The RBI is also in detail getting into what is being said, what is being felt by the stakeholders, what’s the experience elsewhere. They’re looking into business. I’m sure they will take all these into consideration.

Is there a case for a sweeping look at laws to decriminalise them?

There is very intense work going on. I had spent a lot of time myself on it was when ease of doing business 1.0 started; we started reducing such compliances. Then, when we looked at the Companies Act — sections that had criminal offences. In fact, one of the first amendments to the Companies Act, which in 2019 I came up with, was to make a number of criminal offences compoundable. There are still a few more, not just in the company law, but there are others as well. There is definitely going to be a look into it by the government.

Many political leaders and even you during your reply to the budget discussion drew comparison with the previous regime. Why is there a need to dwell in the past so much?

The need arises for us to remind the past for those who stand up and pontificate that you can’t handle the economy. That has been said in so many words — oh you can’t handle the economy. It has now been eight years, tell me if there’s been even one whisper of wrongdoing by this government or of a corrupt practice. But people who were wallowing in corruption, people who were completely full of wrongdoing, people who gave up managing the Indian economy and left it as one of the fragile five, people who resorted to total paralysis and even couldn’t manage the inflation of that time, when despite all this, they stand on their feet in the house to say you don’t have an understanding of the economy, do they need to be reminded or not? Media doesn’t do that.

So, the reminder is for people who stand up there and lecture to me. Would you even ask a question of Dr. Manmohan Singh … I personally hold him in high regard … (He) speaks up only when there is election in Punjab and tells about economy has to be handled this way or that way, when he looked the other way. In fact, he turned a blind eye when 2G happened, when coal scam happened, when NSE happened.

The NSE today is their legacy. They gamed the system. Dr Manmohan Singh who held the position of a finance minister and as a Prime Minister did not even question his own finance minister as to what is happening in the NSE. And, these are people who stand up and ask PM Modi about how to handle the economy. Are they suggesting that Prime Minister Modi doesn’t know to game the economy for personal benefit, which is what they did? I will keep reminding. You may fault me for it. These are people who should be told the fact. I’m telling truth to them in their face now. The NSE is essentially their own making.

There was a Prime Minister, who was finance minister, who knew many things about their economy, had people who manage their economy as for his own description, who knew how to handle the economy. Is this handling the economy? If gaming the system is managing the economy, we are not in here for it. This needs to be reminded. Your two hands will not have enough fingers to remind about the way economy was exploited — Air India, BSNL, MTNL, 2G, coal and Antrix Devas, a total fraud. You gave away permission for some technology which is probably not even available today. Actually, managing the economy through all these unseen unknown unjustifiable illegal methods is what they knew. Dr Manmohan Singh, you should have said this during your Punjab campaign, although it was only via VC. So reminding is necessary.