Capex is the route to economic revival, says FM Nirmala Sitharaman

In an exclusive interview with BS, Sitharaman says spend on capital assets may work better than sector-specific fiscal steps

The government would depend on its public capital expenditure programme to revive demand in the economy and might not go for sector-specific fiscal measures, Finance Minister Nirmala Sitharaman told Business Standard on Friday.

In a wide-ranging interview, Sitharaman said the Centre would finalise the privatisation of a public sector bank soon. Also, the fiscal deficit and growth situation were very comfortable this year in spite of continuing external headwinds, she added.

“The route we have chosen and the one we are sticking with is capex. Even during the pandemic, we adopted this method of spend on capital assets to ensure economic revival. And states really showed that they had the absorptive capacity,” Sitharaman said.

The Centre’s capex outlay is estimated at Rs 7.5 trillion in FY23. Of that, Rs 1 trillion will go to states as a long-term, interest-free loan for their capex needs, according to the FM.

The entire Rs 1 trillion could be given to states in the July-September quarter itself. “Many states are ready with their plans to spend the capex on greenfield or brownfield projects. The rules for distributing the Rs 1 trillion loan were framed by late April and states brought their projects for evaluation in May.”

Sitharaman said she was confident that the amount (Rs 1 trillion) would be picked up by states before the end of the second quarter.

Speaking on the biggest challenge for fiscal and monetary policymakers — inflation — Sitharaman said the 6 per cent upper limit of the Monetary Policy Committee’s (MPC’s) medium-term inflation target was a ‘sacred’ number.

“The challenges are all external. Our inflation is nowhere near what countries have experienced. But even this will be burdensome on our people, because we have people with very low income who can’t afford to have that kind of burden on themselves,” she said.

Headline retail inflation for May 2022 cooled down from the 8-year high of the previous month to settle at 7.04 per cent. It was still a fifth straight month of headline retail inflation staying above the MPC’s medium-term target of 4 (+/-2) per cent. The Reserve Bank of India expects inflation to average above the 6 per cent mark till the October-December quarter.

Sitharaman said the economy recovered strongly from the three waves of the Covid-19 pandemic because the Centre took a “variegated approach’’ for different sectors rather than opting for “one size fits all” measures.

“We had our way of handling the pandemic and that was very much tailored to the uniqueness of the Indian economy. In that, you have a large number of medium and small-scale industries spread across so many sectors. You had to have one kind of solution for one area,” she said.

The government is going on with its plans of bank privatisation, the FM pointed out. “We’ll keep going. The plans are almost ready and we will bring amendments to the Banking Regulation Act soon.” Referring to banking as a “strategic sector”, she said the Centre would continue owning some banks. However, in the banks which the government decides to exit, it could do so completely. “I can exit some banks completely. But whether we do that or we keep some stake is all part of the decision-making process,” she said.

While there has been no official confirmation from the government, Central Bank of India and Indian Overseas Bank are said to be the candidates for privatisation.

On extension of compensation to states after the recent GST Council meeting, the FM said the trust between the Centre and states was intact because the Centre had not failed on its promises.

“I have heard the states. The two Covid-hit years cannot be taken to measure any kind of revenue growth percentage. And after that also, when revival is taking place, about 8-9 per cent is the most that the best-performing states have reached,” Sitharaman said.

On the National Stock Exchange scam, involving its former chief executive officer Chitra Ramakrishna, the finance minister said it was felt that the Securities and Exchange Board of India (Sebi) did not take sufficient action.

“Nobody is interested in damaging NSE as it has a huge contribution to make in the financial markets. But equally, it cannot be that you do things which can hurt the confidence of the markets,” she said.

“That’s what the CBI is going into. And that’s what the regulator Sebi is also looking at, because what was felt that sufficient action hadn’t been taken by Sebi at the time it happened. Probably some token action was taken, but it didn’t address all the issues related to this scam.”