Rajat Sethi: Union Budget 2022 presented by Finance Minister Nirmala Sitharaman has been projected as India’s self-reliance budget. Why do you think it was tagged as the Atmanirbhar budget?
Jayant Sinha: Union Budget 2022 is a budget focused on building a strong and prosperous India – Atmanirbhar India. When we talk about Atmanirbharta what we mean is that we want to build an India that is confident, self-assured, looking to the future with absolute conviction that we can build a strong and prosperous India. An India that is in control of its destiny, that’s what we mean when we say Atmanirbharta. This year’s Union Budget demonstrates that thinking very clearly. The budget is focused on sustainable growth going forward and when we say sustainable growth, we mean that in the medium term over the next 3-5 years, India will be able to grow consistently at 6-8% and for that we have to build the productive capacity of the economy. Therefore, this year’s budget very much has emphasised the role of capital expenditure, removing various frictions that are in the ease of doing business and continuing to strengthen both the corporate sector as well as the MSME sector. So, growth is an important pillar of Atmanirbharta and because we really emphasise capital expenditure in business and investment, we are poised now for strong sustainable growth in the medium term. So that is the first and perhaps the most important point when it comes to controlling our destiny and becoming Atmanirbhar.
The second very important point that is reflected in this budget is the fact that we are focusing on strengthening our capacity and very important manufacturing sector. These include for instance smartphones and solar panels. And for solar panel manufacturing, an amount of Rs. 19,500 crore has been given as the production linked incentives (PLI) scheme. It includes advanced chemicals for batteries. Many of these manufacturing sectors that are vitally important for us as an economy going forward have got a lot of encouragement through this budget. In total, 14 sectors are being benefited through this production linked incentive scheme. And over two lakh crores as incentives are going to go into these PLI schemes across these 14 sectors. We are expected to create about 60 lakh jobs through these PLI schemes and in particular there is one key area that I think should deserve all of our attention and that is in semiconductors. There is Rs 76,000 crore worth of incentives that have been lined up specially for semiconductors and the reason for that is that we have to be absolutely able to manufacture semiconductors which is the heart of electronics, which is the heart of the digital economy, that we need to be able to manufacture in India. If we cannot do that, we cannot be confident that we will be in control of our destiny going forward.
The third area to focus on with respect to Atmanirbharta is defence and in particular defence production. So again, in this budget there is an emphasis now that most of our defence requirements should be met through defence production and that’s going up from 58% to 68% in this budget so that we manufacture the defence equipment and the defence goods that we need in our own country. In addition, 25% of the defence R&D that is done through DRDO should go to our start-ups so that we can build a vibrant start-up ecosystem that can serve our defence sector as well. So, whether it’s defence production or defence innovation, in both areas we are emphasising Atmanirbharta. Atmanirbharta is a journey, and it will continue. But for India, particularly given the very unsettled global situation we are in right now, it’s very important for us to be able to control our destiny when it comes to growth, when it comes to these important manufacturing sectors.
Rajat Sethi: India had come out of two years of really bad Covid situation and now the third Omicron wave as well. Entering into this phase of budget making exercise what do you think were the top policy priorities before the Prime Minister as well as the Finance Minister?
Jayant Sinha: The top policy priorities going into this budget are reflected well in some of the matters that I have highlighted. Atmanirbharta absolutely is the overriding priority. I think it was necessary to provide support to vulnerable populations which we provided. 80 crore people got free food grains for 19 months. It cost us 2.6 lakh crore, but we did that. We made sure that 170 crore plus doses of vaccine were administered, so now more than 70% of our people have got two doses. The people who need booster shots are getting booster shots, and so are vulnerable populations. Whether it is the MSME sector, the farmers or the poor, all of them have got support and that has been a very high priority and that required a lot of assistance last year and that assistance is going to be continued this year. The other very important priority was to continue to strengthen the healthcare sector which has been done and third of course is our manufacturing sector that needed the support of the PLI schemes and that has also been provided.
Rajat Sethi: The budget speech of Finance Minister also ushered us into the Amrit Kaal, the next 25 years of India which will hold a lot of promise for our nation. India will be the beacon of hope for the world. It will be one of the largest and strongest growing economies in the world and in fact the world looks up to India to carry the burden of the growth for rest of them. Positioning this as a priority goal, what do you think Prime Minister’s vision was in terms of this Amrit Kaal of 25 years and how did the budget reflect India’s trajectory into these 25 years?
Jayant Sinha: Amrit Kaal is based on two absolutely important pillars. The one pillar which is the ease of doing business is intended to ensure that India becomes a successful economy, that our corporate sector and our start ups do very well, that our MSMEs get the support that they need. And so, we have focused on ease of doing business, enabling investment to happen, enabling the growth of our start-up ecosystem. So ease of doing business, continuing to support our enterprises is very important for us and obviously that’s one of the pillars. The other important pillar is ease of living. So, we focus on ease of doing business on the one hand and easier living on the other hand, through all of that our economy will do really well. We will be able to train them and support them and that will usher in the era of prosperity and a golden era for India, which is what the honourable Prime Minister has called as Amrit Kaal from our 75th year of independence to 100 years of independence. This is a time when many factors are lining up for India so that India is generally in a sweet spot because our demographics are really excellent, our democracy remains robust. A lot of global factors are moving in our direction as well and when you add all this up, we are absolutely in a sweet spot.
Rajat Sethi: This year’s budget was less on popular side and more focused around futuristic goals laying out the foundation for robust growth and sustainable growth out in the future. What was going on in the Government of India’s mind when they were highlighting talking about futuristic sunrise sectors in the budget which so far have never got a mention in any of the budgets previously in all of these years. What do you think about such a futuristic sort of a budget anchoring around the youth of this country?
Jayant Sinha: Prime Minister Modi is a visionary leader and he has very correctly understood that on the one hand there is this incredible trend towards digitisation where we have to build a digital economy and we are building a digital economy incredibly successfully. India has the cheapest data rates in the world. 4G is available everywhere. We are moving towards 5G. Everybody has a smartphone, everybody has a computer, we are rolling out Bharat Net down to our panchayats, so on the one hand the digitisation of the economy is moving very quickly and when we think about digitalisation, we obviously think about cutting edge technologies like artificial intelligence and machine learning, we are thinking about quantum computing which has been referred to in the budget. We are obviously thinking about drones we are thinking about high-speed supercomputing capabilities all of this has found mention in our budget. We are going to ramp up our solar panel manufacturing. We are going to build a completely new type of grid with massive amounts of battery storage. We are going to advance manufacturing of batteries. We are really looking out for things like solar pumps which are getting a lot of attention as well. And of course we are looking at offshore wind and wind supply of many kinds. So whether it is digitising the economy, of greening the economy, both of these two mega-trends are going to be extremely important so that India gets to the green frontier. India gets to a point where we are absolutely at the cutting edge of the global economy and we build a sustainable competitive economy which I would like to say Atmanirbhar Bharat (ANB). ANB equals CSR. Competitive, Sustainable, Resilient. So, it is absolutely an Atmanirbharta budget but on the other side of the coin on the flip side it is also a jobs budget. It is very much a jobs budget. We understand for a young population we have to create jobs and that is why people were surprised when they looked at the budget and they said there are five state elections coming up but there wasn’t even the slightest hint of populism that you would have expected. That is why we have emphasised jobs, capital expenditure and those investments in the economy which are going to create jobs
Rajat Sethi: There are sectors which are moving out of favour and there are new sectors which are coming in and as you were pointing out, several of these sectors carry the promise of providing lakhs of jobs to our youth and we should skill ourselves to constantly add greater amount of value in these. How do you analyse this?
Jayant Sinha: India’s exports have grown to levels that we could never have imagined. As of now, our exports are at US $400 billion. So we are clearly doing something right when it comes to the PLI schemes, when it comes to the policies we have been following in smart phones, in electronics, manufacturing in textiles, in small automotive two-wheelers and so on. We are clearly growing our exports because our economy is getting steadily more competitive day by day.
Rajat Sethi: India’s fiscal deficit last year was around 6.8 % and the projected fiscal deficit for this budget is somewhere around 6.4% aiming for around the same range. What do you think should be the glide path going forward in terms of having these deficits accounted for in a sustainable manner in our public debt numbers which have shot up because of the extra expenditure that the government had to do? And it has risen above 90%. How do you think a proper glide path to bring it down around 70-72% would look like?
Jayant Sinha: There are two very important aspects around what you have asked. First is that our government has laid out a fiscal glide path. So right now, you are absolutely right. We are at 6.8% going down to 6.4% but we have said very clearly that we intend to go down to 4.5% over the next two or three year. That is consistent with all other countries around the world that have raised spending during the Covid pandemic when, because of the lockdown, economic activity had to be shutdown and that happened throughout the three waves that we have had. So this is the time when you have to spend. Every country in the world, every large economy in the world has spent, and for everyone, fiscal deficits have gone up. So this was to be expected. This is being correctly applied in terms of the fiscal stimulus and the government, in a very responsible way, has laid out a glide path to get down to 4.5% again. And as I said, it is also a question of how you spend. Because we have stayed away from populism and instead focused our attention on capital expenditure which is much more stimulative for the economy and is a much higher economic multiplier, the quality of our growth is going to be much better. So that is one part to your question. The second part your question is also to understand that we have taken this opportunity to clean up India’s balance sheet. This is very important, for in the past, in the UPA government for instance, a lot of liabilities were taken off the budget and they were stuck into things like oil bonds for example for which we are still paying. Lakhs of crores of spending which should have been in the budget were taken and put into oil bonds so that they would not be in the fiscal deficit but they actually were a liability on the government. This time, for example, liabilities associated with the Food Corporation of India, which is the money we are spending on the Food Security Act instead of being taken off the balance sheet has been incorporated on the balance sheet and included in the budget which is why some of our deficit numbers have gone up. But this was the right thing to do because by cleaning up our numbers and being transparent, which the Finance Minister has done, we are setting the stage for robust transparent, non-inflationary growth going forward.
Rajat Sethi: Some of the analysts have been saying that strongest headwinds that India is going to face in the next year or so would be a) inflation b) Fed tightening and it might throw the markets into a similar kind of a paper tantrum. How do you think budget exercise and India’s financial planning takes into account these exogenous factors?
Jayant Sinha: Global inflation has spiked. It has reached over 7% in the United States, over 5 or 6% in the United Kingdom. It is at rates that have not been seen in mature advanced economies for 40 years. So global inflation is in spate, with the situation that’s developing in the Ukraine also resulting in oil prices going up. They are starting to touch US $100 a barrel and of course whether it is the economic survey, the budget speech or the Prime Minister’s comments after the budget, all of them reflect these risks and uncertainties that we are dealing with right now. The good news in India is that inflation in India has been in a comfortable (as per RBI) range of between 2-6%. The RBI has done an exemplary job of managing monetary policy through a very difficult time, through very challenging conditions. The rupee remains stable, our foreign exchange reserves are over US $600 billion and therefore, even while there is all this inflation coming in through external inflation, we have built up our productive capacity. Our supply chains are working reasonably well and therefore, inflation in India is much more manageable and much more under control than it is elsewhere.
Rajat Sethi: Please share your views about Cryptocurrency and the future of finance. The budget touched upon taxation of cryptocurrencies to the tune of what ideally a lottery would be taxed at. And also, there was talk about India’s digital rupee being launched in 2023. What is the governments vision around this futuristic dimension which is opening up and where do you see things shaping up in the future?
Jayant Sinha: Every time a new financial technology comes along like, for example digital payments in the past, and now cash flow-based lending which are new financial technologies, we have to balance innovation with regulation. So our job as policymakers and as regulators is to make sure that people are knowledgeable about the risks that they are taking, that there are not any excesses and that people are protected when they have to deal with new types of innovation. Now it is very much a fact that millennials in India, young people in India, are very excited about cryptocurrencies. When it comes to cryptocurrency in India, we have a very unique set of issues as far as cryptocurrencies are concerned, which Japan, Singapore, the United Kingdom, the US do not have to deal with. Which is that we have capital controls when it comes to our currency, our currency is managed through the foreign exchange management act (FEMA). So we cannot allow free flow of international currencies through India. Hence, we have to be very careful about how all of this develops and progresses from here. In addition to that, there is no global consensus that has yet developed on cryptocurrencies. So I think the government has taken a watchful position and they said that there are some good use cases for a sovereign digital currency which is why that has been announced. The RBI will come out with a better digital currency, which is going to be controlled and managed by the RBI.
Rajat Sethi: You are a seasoned investor as well. How promising does India’s growth trajectory in its near term look like to you and what would be the message to all these global analysts and watchdogs that are looking at India and really eager to understand how is India going to progress in the next few years?
Jayant Sinha: I really cannot guess at all what is going to happen in the short term. In the long term we know one thing that today our GDP is US $3 trillion, the market capitalisation of India’s traded stocks is also about US $3 trillion. Now the Indian economy is growing at 6-7% a year in real terms and what that means is that over the next few years we will have a 5-7 trillion-dollar economy. So when we get to let’s say US $5 trillion economy and the ratio of GDP to market cap remains as much as it is right now, we are going to go from US $3 trillion of market capitalisation to US $5 trillion of market capitalisation. That means over the next few years (if historical correlations hold then) we are going to add US $2 trillion of wealth to our listed securities. That is a tremendous amount of wealth creation on a base which is already very sizeable of US $3 trillion. Our economy, demographics, entrepreneurship, innovation are so strong that as we progress to an US $5 trillion economy, we are likely to create US $2 trillion of wealth as well. So, this is going to be one of the great wealth creation opportunities around the world and there will be very few others that can match the scale of what is possible in India.
Shri Jayant Sinha is Chairperson, Parliamentary Standing Committee for Finance and Member of Parliament, Lok Sabha.
Shri Rajat Sethi is Author, Economist and Advisor to Chief Minister of Manipur.