HT Interview: Govt focus will now shift on ensuring transmission of rate cuts to consumers, says Sitharaman

Increased consumption may well help the government end the financial year with no impact on revenue on account of the rationalisation in GST rates, finance minister Nirmala Sitharaman said. In an interview, she added that her focus will now shift to ensuring the transmission of the rate cuts, which, while not being motivated by the tariffs levelled by the US on Indian exports, could help offset their impact. Edited excerpts:

Increased consumption may well help the government end the financial year with no impact on revenue on account of the rationalisation in GST rates, finance minister Nirmala Sitharaman said. (Sanjeev Verma/HT PHOTO)

You made some changes in the income tax regime in the budget.

Big ones…

… And the new income tax bill and the rationalisation in GST, taking it closer to its original idea. So you have a direct tax reform and an indirect tax reform, which by itself is a staggering achievement, in this short a period. Because these things usually proceed at a glacial place. So what’s next?

What’s next is September 22. I will have to see how it plays out on the ground; how people benefit from it.

There’s a general feeling that bureaucracy operates at a glacial speed, does not deliver; does not understand the mandate with which a government is formed; and that therefore most promises made do not see the light of day within that term.

Here is a case of bureaucracy, across India, working simultaneously, with clarity…

I enjoyed this phase. It was rigorous. It was intense. It was like taking a tough exam. And passing. For the entire team. Whether this benefits people is a different exam — and I will take that too.

The rejuvenation I feel… that’s the reward for the sweat and toil, I suppose.

You’ve fundamentally changed the tax architecture, direct and indirect taxes in less than a year. It’s been spoken of for years…

Yes, I am very happy with the teams, both direct and indirect taxes, working with me.

Would you put this down as your biggest achievement as finance minister?

Each issue was a challenge; going through Covid and coming out of it was no less a challenge. But I don’t see this as my win. Unless the people of India respond to the changes being undertaken…and we are seeing them respond, that’s why you are seeing the Indian economy be so robust. It can still have several challenges, but the people are the ones ensuring our growth rate remains fastest. We will soon be the third largest economy in the world. Our fundamentals are absolutely sound. And borrowing also has come down.

How enthusiastic were the states about the rationalisation in GST? Did they have any concerns?

They had only one; if revenues go down… I explained to them that we were all in this together. That all the money was coming from the same pool.

It’s quite significant you managed to get this through without any formula for compensation. The first time, when GST was introduced you have to ensure compensation.

We explained that it was simple, clean, straightforward system. If you look at it, 0%, 5%, 18% — 99% of goods and services have come under these. This is the simplest. And we did away with the cess.

Is the backend ready?

That’s why we took time till September 22. There were some who felt that because it was a pro-people and pro-poor proposal, we should implement it immediately.

Everyone is speaking of the net revenue impact. How soon do you think increased demand will offset that impact?

If the festive season goes as per expectations, if it is good, this financial year itself we will be able to make up. That’s my sense. We have had industry tell us, in cars, white goods…that bookings are not happening, that people are deferring purchases. In all likelihood, from September 22, people will go out and buy, just like they did post Covid. Revenge buying. That’s what industry is telling us.

So, the notional net impact on revenue of ₹48,000 crore this year will be made up; you will more or less be meeting the GST revenue target for the year?

Yes I am saying that, and I am also saying that my fiscal deficit will be in line as promised.

And there will be no need for any expenditure cut or rationalisation?

No.

One of the reasons why states are so concerned with GST is also because it’s their main source of revenue and many of them are splurging on welfare; do you see them becoming more prudent?

Managing public finance will have to be taken from the perspective of optimal utilisation. Where do you want to put every rupee you earn from tax? Will you get optimal return from that? Unless we answer all this, we can just take it and use it without much thought. And this is not about one party. But finance ministers everywhere have to deal with this dichotomy.

But I think going by the principle of economics — when you bring rates down, your income goes up. There’s no way in which this round of rate rationalisation is going to affect the states — perhaps in the immediate future (it may), but after that, it will be restored.

What are the challenges in implementation?

It’s more in making sure the rate cut is transmitted. That’s my focus. I will keep a watch. Several MPs have told me they will keep a watch in their constituencies. We are already talking with industry (leaders). And many of them have assured me that they intend to pass it

This decision to not have a body that will ensure there is no profiteering (by not passing on rates)….

That was, even by act, even for the first two years…

Sure, but are you going to closely monitor transmission of the reduced rates?

Absolutely, I am going to closely monitor it

And if industry does not pass it on?

I will see what they need to do. I have to check by sector. We will closely follow it

And there will be action taken if they don’t pass it on?

That’s the presumption. When I say that I will closely monitor, that’s implicit. But I think, to be fair to industry, many have voluntarily said they will pass it on. I would like to trust them.

Some research reports suggest that the increased consumption will offset losses to exporters on account of rising tariffs, as far as impact on the Gross Domestic Product (GDP) is concerned. What’s your sense?

It is very difficult to assess the impact of tariffs at the moment.

But can we broadly say that the impact of this rationalisation will help offset the impact of tariffs?

Yes, but that wasn’t our intention. The changes weren’t motivated by the tariffs, but in an economy you can’t have water-tight compartments.

Is there a package in the works for exporters to help them cope with the tariffs levied by the US?

There is something being worked out across departments, not just finance.

What impact will the rate rationalisation have on inflation?

It is already low and it will come down even further.

We have moved to GST 2.0 with two slabs. The next logical step would be to have one slab.

Yes, but that will take time. As we get closer to Viksit Bharat we will move to one rate… but it is not something that looks feasible in the immediate future

You have said this before. Of how the GST regime became complex because of various pulls and pressures, and ended up with multiple rates and also rate changes. Going forward, will there be more stability?

It isn’t ideal but you can keep changing the formats, the checklists etc, but if you are changing rates in every GST Council, then it brings uncertainty to manufacturers as well as consumers. The Council has not approved this but I feel rate-related changes should happen only once a year. Maybe I will share this with the Council also the next time we meet. You can discuss changes through the year, but make the change only once, from April 1. It makes it easier for businesses to plan for the entire year.

What’s the next big reform in your ministry?

The next would be about regulators who are non-financial. That’s one area which is pending reform. I announced it in the budget. That’s very critical. Like Competition Commission of India (CCI), Food Safety and Standards Authority of India (FSSAI)…

On disinvestment, what is the road ahead?

We will go on with it.

There was talk of privatising one general insurance company? Is that still on?

Nothing is off the table.

The latest GDP showed a nominal growth of 8.8%. The assumption in the Union Budget was 10.1%. So are you worried about nominal growth?

We are yet to make a complete review of what’s making the difference in nominal growth. Once that’s done, I will be able to say what kind of correction, if necessary, we have to make.

In line of our improving relations with China, is there a rethink on Press Note 3 (on investments from China)? There’s a demand from industry, and we also need their technology and investments in some cases…

Already there is some flexibility being shown in PN3. Particularly for projects that are already on the ground and where they need technicians…Similar things will be taken up immediately, so that India’s infrastructure projects are not struggling for absence of necessary expertise

This GST Council meeting was originally called for two days, and you managed it in one day.

Because everyone was in agreement on the reform-related agenda. The GoM on rate rationalisation’s report was taken up at 2.30pm, and we started discussing it at 3.15pm.

Do you expect these GST changes to have an impact on the coming Bihar elections?

This is for 1.4 billion people; GST affects every person in some way. And there are people in Bihar also.