Interest rates have gone up. Will this affect the government’s plan to revive the economy, which in the last budget was largely through increased capital spending?
Well no, because with the international behavior of crude prices and…situations such as the Russia-Ukraine affair, when we prepared the budget, there was no idea of war. But certainly…there was enough and more speculation about rising commodities, rising crude, and also global supply chain disruption…even as we geared up for the budget. Also, to be fair, the US Fed had made it very clear that it was going to do quantitative tightening, and so I don’t think we were surprised that the Reserve Bank of India (RBI) is taking its own step and I don’t think it will affect our infrastructure investments.
Was the rise in the RBI rate a surprise?
The last MPC, I think, had kind of given an indication that it was time for them to act as well. It was the moment that surprised a lot of people, but the act, people thought, should have been done anyway – how much, it could have varied. So in a way it was a synchronized action – Australia did it…and that night the United States really took the first step. So I see a greater understanding among central banks these days…the understanding of how to handle the recovery from the pandemic so is not unique or typical for India alone, it’s a global issue .
In the neighborhood, high fuel prices, higher inflation than ours, and depleted foreign exchange reserves have caused a problem perhaps similar to the one we faced in the early 1990s. and has this been discussed at Fund-Bank meetings in the context of India?
No, it wasn’t discussed, although of course the talks were about the neighborhood… That’s not bragging — I want it on the record because you talked about what was discussed in Washington. There was a great sense of admiration that we continued to make reforms even during the pandemic…that India did not let its poor suffer, especially the way the foodgrain program was run . There was also a clear appreciation…that the Prime Minister literally led from the front and didn’t make it sound like the country was probably unsure how to handle it…Repeatedly a fact that I I heard was that India was leading the way in terms of the digital economy, the payment system, how we could use (this) during the pandemic and it’s being done in a very cost effective way. And how we have embraced technology to simplify income tax or GST has also become a topic of conversation.
You then went to Germany with the PM. What were your takeaways from these visits?
The Covid recovery even after the IMF knocked down global GDP growth, with India remaining at the top with the fastest growing among peer economies, and the fact that India…is now the hub for the sourcing many things that were otherwise in one basket. There is a clear acknowledgment both in Germany and also in the various meetings I have had in the United States that the Indian economy has now become the second best where investments are happening… Atmanirbharta did not closed the doors, we are actually trying to strengthen ourselves.
Due to geopolitical developments, subsidies are increasing. The Pradhan Mantri Garib Kalyan Anna Yojana has been extended recently. Will this affect tax calculations?
As for the food program, we understood (until we could) be sure that (the poor) were earning a comfortable living, we wanted the food program to be extended, for which of course the outside understanding of a limit is around Rs 2.10 or Rs 2.20 lakh crore. Somehow, mentally, I think the math has been on our minds and even when preparing the budget. The fertilizer business last year itself, even unexpectedly, took a very large part of our budgetary provisions and we had to bring in extra during the supplementary demands. This year, even when we got into it because of the way crude was playing and because of supply chain disruptions, like I said, commodities, we also had those three elements inputs that go into the production of fertilizer. So we were aware that even this year we might have to give bigger numbers for the fertilizer subsidy because the intention is not to move it or load it on the farmers, so to some extent , we were ready for an additional allowance both for the Anna Yojana and also for the fertilizer.
The biggest macro challenge right now is inflation. What do you think of an overhaul of the Goods and Services Tax (GST) rates?
The first thing I know theoretically and also economic observers would prefer that I go to the GST Council tomorrow and say a rate and that’s it, it’s all in, the petrol is in, everyone’s happy. No, that does not happen, let me be very clear. The committee headed by the chief minister (Basavaraj Bommai of Karnataka) will certainly have to submit its report. The mandate given to them, as well as the issues that have periodically arisen in the GST Council, was to see how we at least get back to the revenue neutral levels at which the GST was introduced. And of course, rate rationalization was discussed. point in over three or four GST Board meetings…that also comes into play. Wherever inversion prevails we wanted to fix that because we can’t afford to continue giving those refunds and that also has a impact on the PLI scheme. So it’s not just a black-and-white issue of the report that comes from the committee and tomorrow I call a GST council and that only looks at the rate hike. No, sorry, it’s not happening at the next meeting.
It looks like some asset sale plans have stalled. Do you plan to speed them up?
I’ve been hearing this since 2019. Air India has arrived, same question. Neelachal Ispat has arrived, Pawan Hans has arrived. You keep asking. We will continue to do.
Do you see the need to further strengthen foreign exchange reserves and do you have an ideal level in mind?
No, but with income from all sources it comes from and also with exports showing a very clear upward trajectory…especially the service sector is also showing clear signs of good momentum…RBI spoke about the type of reserves that they may have. They can probably even forecast higher for the confidence to come from the central bank, that’s great. For us, the level of confidence will have to be on how we are going to stimulate exports, how we can get there, how agriculture can benefit from exports, which is clearly happening. Farmers also now choose to sell to the trader who will export it and provide them with better income rather than turning to the MSP (minimum support price).
Exports picked up smartly. Will we see more import restrictions to reduce the trade deficit?
No, I would like to take this opportunity to say that the principles governing taxation or duties levied even with atmanirbharta intact is to ensure that taxation is levied on items that are produced in the country. We don’t want the doors to be opened to those who arrive at a predatory price, at a scrap price, for the goods that are produced here, especially those that are produced by MSMEs… Logic and principle of strengthening the Indian economy is what ruled us by levying duties, let’s be clear on that.
Where are we with cryptocurrencies? This was also raised during Fund-Bank meetings.
Absolutely, a lot of countries have shown a lot of interest. The G20 wants to know, in particular because from this month of December, it will be our country that will take over the presidency of the G20. We have had specific discussions about this. The FSB (Financial Stability Board), which reports to the G20, had also done a lot of work on crypto. The fact that India has chosen to go the central bank-led digital currency path is also a good thing.