“India Is An Island Of Stability And Growth”

Swarajya believes that the forthcoming Budget will be a make-or-break one. However, Minister of State for Finance JAYANT SINHA believes that all Budgets are make-or-break ones and that the February 2016 Budget was also be a landmark one. In this interview with Seetha, Sinha talks about the challenges facing the economy and the government’s approach to economic policy. Excerpts:

Your government has done a fair amount on the economic policy front—a few big things, several small things, but somehow do you feel that this is not translating into results on the ground, in terms of pepping up the economy?

We have done more for the economy in 18 months than any government has done. It stands very good comparison with the reforms that were done in 1991, which were done under pressure. We have, because of our manifesto and explicit economic philosophy, taken very bold and decisive steps in multiple areas. The challenge is that people tend to overestimate the short run and underestimate the long run.

Through the long-standing economic philosophy of our party, the manifesto that we produced before the elections, the July 2014 and February 2015 Budgets, and all of the economic policy making that we have done subsequently, we have demonstrated a very clear and coherent economic policy making framework.

Our objectives are very clear when it comes to economic policy. We want to first and foremost eliminate poverty from the country, to ensure that our agriculture is sustainable and productive, we want to create massive numbers of jobs for our young people and we want to deliver a better life for all citizens.

To achieve these objectives, our strategy is to build India’s productive capacity. This is a supply ­side investment-driven view—not a consumption­-oriented demand­-side view—of economic policy making. And to build our productive capacity, which we believe is necessary to be able to sustain high growth—that is growth of 8 per cent for decades—we need to build India’s hard and soft assets. Our hard assets are our roads, highways, bridges, power plants, factories. Our soft assets are the skills and employability of our people, our economic and judicial institutions and the innovation and entrepreneurial ecosystem of this country.

Along with this strategy, we are following five well­-defined principles that inform and guide our policy making. First, we are a pro­-poor government—we are a government of the poor, for the poor and by the poor. But because we are a pro­-poor government, we are a pro-market government as well. We understand that unless competition flourishes, businesses flourish, innovation flourishes, we are not going to be able to generate the economic surpluses that are necessary in order to look after the poor and eliminate poverty. We also believe in empowerment, not entitlement, and so we want to equip people with the tools, the opportunities, the skills to better their lives. We also believe in minimum government, maximum governance and the notion here is a rules­-based, policy-based government that is free of corruption and can deliver services to citizens efficiently and effectively. And, finally, cooperative federalism. We believe India is a union of states and so the states have to be vital participants and drivers of reform and delivery of services to our people.

We have an approach where we are reforming to transform India. We have developed an entire transformation architecture to enable us to deliver on our four important objectives.

For the poor, we have universal social security, housing for all, income and food support. In agriculture, we have soil health cards, irrigation, crop insurance, agricultural credit. For jobs, we have Make in India, Skill India, Mudra, Start Up India, ease of doing business. For better life, we have smart cities, transportation, Swachh Bharat Abhiyan, environment and climate change protection. We are also strengthening our financial system, our tax system, our infrastructure, and we are strengthening federalism.

It is a well thought out, coherent framework for driving the economic transformation of India.

As for results on the ground, look at GDP growth rate, inflation, fiscal deficit, current account deficit, pick up in multiple sectors.

All of these will tell you that we are doing rather well. Particularly if you compare us globally, you will find today India is an island of stability and growth in some very stormy global waters.

Even the IMF has said that. But the set of figures that came out recently (the poor industrial production numbers for November]. . .

We can’t get carried away by month-­to-month fluctuations. We have to look at the longer-term picture, we have to look at the trends, and the trends are very robust and positive. We are going through the classic economic cycle upturn where new sectors—e-commerce, pharmaceuticals, renewables, airlines—are leading the economy out of this slowdown.

The sectors that got us into trouble in the last economic cycle like mining, steel, power, are obviously struggling. And they are struggling because of the failures of the previous government, which we are fixing now, or because of global factors.

Obviously, under those circumstances, not every cylinder of the economy is going to be firing. Some cylinders will fire, others will splutter, but as growth picks up when we move through the cycle and get to the later stages, all sectors of the economy will start to do well.

You also have to take into account two other very important facts. This is the second year in a row that we have had a deficient monsoon, which has happened only once in 30 years. Which is why agricultural growth has been slow. But it has not been negative despite the deficient rainfall, which is impressive. Number two, exports have come down sharply because globally there is a slowdown and prices have collapsed. Our competitiveness has not declined, but the level of exports has declined.

While some sectors like real estate, steel, and exports are feeling tough economic conditions, that is not the case when you look at e­-commerce or pharma or services. So a lot depends on whom you ask. Traffic in Bangalore is very very high because Bangalore is booming. There is, sometimes, a narrative that says nothing much is happening but that narrative is not supported by facts. There are certain doom mongers whose job it is to just go out and snipe at anything, but that position is not supported by facts.

Even the mid­-year review said the economy is running on two wheels. And there are global factors. How does this weigh in on the Budget?

I have been in business for almost 30 years. I have been an investor for 15 years. I can tell you that markets are always volatile, there are always global trends and challenges and what you have to do is ensure that your domestic position is as strong as possible, that you have achieved macroeconomic stability, foreign exchange reserves are strong, and, most importantly, that you have the institutions that can deal with these challenges and volatility. On all those counts, you have to give us very high marks.

So there will always be volatility, there will always be turbulence, but we are riding through that. And we will continue to ride through that particularly because the kind of reform measures and transformation measures we are undertaking will continue to not just strengthen us, but relatively strengthen us globally.

We will strengthen our global competitiveness, we will strengthen our innovation ability and all of that will power us, going forward. It depends on whether you look at the glass half empty or glass half full. I see it as half full and so we go into this Budget making process with quite a lot of confidence and a lot of optimism about the future.

Our exporters are already facing the pinch and now the devaluation of the Yuan is going to make our exports more uncompetitive. Cheap Chinese goods could be flooding India when our industry is already in a difficult situation. What can be done to help industry and exports?

What we have do to make ourselves more globally competitive, whether it is with China, Vietnam, Thailand or any of the other exporters we compete with, is to ensure that we do all that we can to improve the ease of doing business, which is what we are working on; to reduce infrastructure and logistics costs that our companies face right now, because a lot of our costs are very high. So we have to reduce the cost of inputs as much as we can through minimum government, maximum governance, by reducing red tape, by improving ease of doing business, by fixing our power sector and ensuring that the innovation ecosystem and the entrepreneurial ecosystem are at their peak.

Just as America is the entrepreneurial engine for the top one billion people on the planet, India can become the entrepreneurial engine for the next six billion people on the planet, for the developing world. That’s really what we have to aspire to. Again, as I said, we have to be as globally competitive as possible, but, equally, we have to be innovative and entrepreneurial because if our products and services are genuinely differentiated in the global market place, they will then find a ready market.

Look at America. Despite being, by global standards, a high-cost economy, it is today the only large advanced economy that is still growing successfully. Why is that? It is because of companies like Disney who just produced the latest Star Wars film, which has become this incredible mega hit. That’s intellectual property, that’s content. There are companies like Google and Facebook there. And Apple. I wear an iWatch and it is a wonderful product. Look at the innovation that has gone into it.

So that’s what we must aspire to, but we will do it at a different design point. Just like the US produces for Union Square, San Francisco, or Times Square, New York or Piccadilly Circus London, we have to produce for Jhanda Chowk, Hazaribagh, for Lagos, for Jakarta.

For us to compete against China, Vietnam, Nigeria, we have to both be globally competitive in terms of factors of production and, at the same time, we have to be constantly entrepreneurial and innovative, so that we build a high-productivity economy.

What is going to be philosophy of the Budget? This one will need to be a make-or-break Budget.

Every Budget has to be a make-or-break Budget. We work hard on every single Budget and the February 2015 Budget was a very remarkable one.

I have gone back and read all the 24 Budgets since liberalization in 1991 and I have benchmarked all those Budgets to understand what were the major reform measures undertaken.

If you go by what most objective analysts say, the five most important Budgets of last 25 years were the 1991 Budget, the 1997 Budget that Mr Chidambaram presented when he brought down taxes, the 2000 and 2001 Budgets that my father (Yashwant Sinha) presented and the disastrous Budget of Pranab Mukherjee where he introduced retroactive taxation.

If you look at these, you will typically find that there are eight or 10 reforms in these. By our count, the February 2015 Budget, which was also heralded as a make-or-break Budget, had 20 reform measures. By the way, we followed through on all of that, if you go back and look at we had promised then and where we are. Subsequently we have undertaken many other reform measures and we have a number of other important initiatives that we will undertake through this Budget as well. Reform is a continuous process. Its transformation of India is a continuous process.

So what will be main planks of this Budget?

Because it is a continuous process, and our priorities and objectives are very clearly defined and very well thought through, again our priorities will be garibon ka uddhaar (poverty alleviation), kisanon ki samvriddhi (prosperity to our farmers, sustainable agriculture), yuvaon ko rozgar (jobs for our youth) and ek behtar zindagi (a better quality of life). We have been saying these things all along. Those have been invariant priorities that are very robust and very timeless.

Subsidy rationalisation is always about DBT (direct benefit transfer), but Aadhaar-based DBT doesn’t address eligibility issues. What further action can we expect on the DBT front?

In subsidy rationalisation, there are three important principles that we are following. One, we want universal social security. There is a whole package of benefits that we are putting together. Two, we are dramatically improving the delivery process so benefits are going to targeted beneficiaries. Three, we are coming up with more rational limits on consumption. One example of that is the 12 gas cylinders (ceiling). That was done by the UPA government. That is a good approach to other subsidies as well.

If you look at food, the thinking now is that every individual should get seven kg or five kg of rice, so can we come up with rational limits on consumption and, along with strengthening delivery so that the targeted beneficiary gets it, we can ensure that there is a certain minimum threshold level that everyone gets, but no more. Because if you give more, then a lot of it is diverted into the open market.

The banking sector is teetering on the edge…

With Indradhanush we have put in place a series of structural reforms which, in total, account for the broadest and most sweeping set of changes to the public sector banks since nationalization.

There is a feeling that progress on this is a bit slow…

No, why do you get this feeling? Because that is not the case. The facts are very clear. We have replaced many CMDs (chairman and managing director), many directors, the banks are working hard to bring down their NPAs (non-­performing assets), we have come up with Rs 70,000 crore that we are going to put into the banks, of which Rs 20,000 crore has already gone in. Obviously, the banks are working through a difficult NPA situation, which is an overhang of the past and what is happening globally.

The government does not appear keen on strategic sales.

That is completely incorrect. In the Budget, we used the term “strategic” very advisedly, because we are looking at the transformation of public sector enterprises as well.

Now there are many other public sector enterprises that people bring up often—why don’t you do a strategic disinvestment or a transformation? You have to recognize that we have to strengthen these organizations first before we dispose of them at a fire sale price. If we were to try and do something with some of these institutions, given that they have been so poorly run for so long and their financial position is so weak, then the valuations that we will get for them, the kind of buyers that we will get for them would not be acceptable to the people of our country.

So, keeping that in mind, we are moving in a measured way as far as strategic disinvestment is concerned.