'It was like rigorously preparing for a solid, good exam...'
'I don't know what marks I will get, but I felt the rigorous preparation of an exam.'
'You may sweat, but I feel rejuvenated.'
Days after the big-bang goods and services tax reform announcement, Union Finance Minister Nirmala Sitharaman, at her North Block office, spoke at length on a range of issues in an hour-long interaction with Business Standard's Asit Ranjan Mishra, Vikas Dhoot, Nivedita Mookerji and A K Bhattacharya.
Part three of a multi-part interview:
The revenue secretary has said this exercise will be fiscally sustainable. But do the rising bond yields worry you in terms of government borrowing?
This is separate. Yes, I think this is perfectly sustainable, and this will be suitable for manufacturers, retailers, wholesalers and the consumers. And absolutely smooth flowing ...
See, the inversion problem is the one which caused a lot of bitterness within the GST...
Because of the pressure of some section of industry, we changed it at the end user rate, and in some cases, we changed it in the procuring itself, raw material procurement, manufacturing, then going to the wholesaler and then....
That is the biggest thorn which created all the inversion problem, then the refund problem, then the gaming of the system problem, shell company problem, and everything.
Now, what we've done is to even it out largely.
There are still one or two on which it was impossible to reconcile. I will still be working on it. So if the end and the beginning are both roughly the same, you don't have these inversions. That is one thing.
The second thing which created this confusion is the classification issue. Take the notorious example of popcorn... chocolate popcorn, salt popcorn... that's not my business to have to talk about it.
But it was a necessity for Uttar Pradesh which wanted the Council to give a clarification, saying, how these two were being treated differently.
I had to come out openly and say, "This is a request of the Uttar Pradesh government".
But people wondered why the FM was coming and talking on popcorn, and why should popcorn be treated differently at all.
All that was because of the classification problems and we have sorted that out.
I will go further to say, trade or tax are all looked at from the HS code chapter wise allocation. This chapter has all those which are roughly similarly placed.
Then you move to the next chapter, and so on.
When I sat and spent a lot of time, I said: "Look, I respect your classification chapters and everything. Keep them 16-digit code numbers. But for me, if I have to look at it from the point of view of end duty, I want you all to go with a pencil and say -- this is daily use, this is MSME, this is farmer..... and regroup them."
I wanted them to be kept in these five category groups -- poor people's daily use, middle class aspiration, MSMEs, raw material and intermediary.
Then farmer -- pesticide, tractor, trailer, power tool, hull... Then the larger interest of the Indian economy... That exercise was done.
Therefore, everything which is used by poor people today -- monthly ration items -- they come either at 5 per cent or goes to zero.
Since 12 per cent is no longer there, majority goes here and few go into 18 per cent.
That is how this whole thing was done, to get over this problem of classification once and for all.
Was there a pushback from the bureaucracy?
Surprisingly, they were not at all a hindrance. Only, it meant more and more work. I really salute them. Over these last eight months, just look at what the Department of Revenue (DoR) has done.
No other part of the finance ministry, just the Department of Revenue. The new income tax law.
Budget, passing of the Budget in Parliament, this reform... all coming out of the DoR and its two boards.
Salute to them. I didn't feel any resistance. The true spirit of wanting to reshuffle the whole thing was understood by them.
They would come with something. I'll have a meeting, and after presentations and questions, they would go back and within couple of days, they'll come back on the same thing.
My God, the number of meetings we held on this! I am telling you honestly, it was like rigorously preparing for a solid, good exam....
I don't know what marks I will get, what number I will get, but I felt the rigorous preparation of an exam. You may sweat, but I feel rejuvenated.
Would you say the same thing about the state bureaucracy also?
To an extent, yes.
On the question on borrowing costs and bond yields, some state government loans have already devolved.
Yes, it is a matter of concern. We will have to see how to take it up.
Will you reduce your government borrowing this year?
At the moment, I have not taken any call on that.
The GST rate cuts will have a positive impact on inflation. Do you think the Reserve Bank of India will have more leeway to cut rates?
They have their own assessments to make of the economy. How this rate reduction and rate rationalisation plays out is also something which they will study and then take the call. We will see how it goes.
The flexible inflation-targeting regime is about to complete a decade and the RBI has also initiated a consultation on four issues as part of its review that is due March 2026.
Should any tweaks be considered in the framework to make it more effective?
It's assessment worthy. It's a topic which has to be reviewed and understood, and see how best you want to move forward. But at this moment, I won't take a position.
We need to be careful about it. It's tempting to say, 'Oh yeah, get the food out of this basket, or it's tempting to say that the items which go into the determination of inflation are old and dated, we should change it.' All that is there... partly relevant as well for the debate. But I think at this stage, I will refrain from taking a position or side. We still have to assess this.
Are you generally satisfied with it?
Yes, it has borne results, not just once, periodically. There are times when it went beyond, but largely, it's held good.
In the current geopolitical scenario, how challenging is policymaking in the government, not just in the finance ministry, but across the government?
Yes, it is challenging. But it is challenging only because you just don't know the contours of the challenge, nor are you in a position to even speculate on how it will pan out and how long it will last.
So the uncertainty is seriously uncertain. Whatever is before you as a challenge is seriously not predictable.
Uncertainty is truly an uncertainty, and I really cannot fix an intensity index for it.
Do you think with the US, the relationship is likely to improve, after Mr Trump's statement on special relationship with India?
How do you see the current state of affairs between the two countries?
We have not made it deteriorate... Well, the trade negotiations are going on, the diplomatic people are engaged with one another.
Business and industry still have relationship. Indians are going there, Indians are living there. People from the US are coming to India. That movement of people is still on.
The PM spoke about next-generation reforms in his Independence Day speech. The government has now formed two new committees for these reforms.
A very interesting feature of this committee is that they will submit a monthly report to the Department of Expenditure in the finance ministry.
While it may be difficult to replicate a big-bang reform like GST, can we expect some reforms being unveiled every month or so?
If the month by month reports give us any actionable point, yes, we'll be doing it. If it's just a status position which is being narrated, we cannot act on it.
So it doesn't mean that every month, I will have to do something. Whichever month, I have a reason to act on, I can.
The rupee has weakened against the dollar. Ours is one of the currencies that have weakened the most. How do you see this movement?
I don't see it differently. If it is a volatility factor because of the dollar strengthening, it will affect it. The Indian rupee versus any other currency is not going through such a phase.
And it's not just the rupee, but it is also other currencies even from the emerging market, which are facing this situation.
That's a reality. You will have to live with it.
Feature Presentation: Aslam Hunani/Rediff