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P Vaidyanathan Iyer
| New Delhi |
Updated: May 20, 2020 8:13:17 am
The Minister of finance, Nirmala Sitharaman addresses a press conference in the national capital. (Express Photo: Prem Nath Pandey)
Two days after announcing the fifth and final stretch of the Rs 20 lakh crore AtmaNirbhar packageOf union , the Minister of Finance, Nirmala Sitharaman on Tuesday, responding to a question about the possibility that the deficit of income (in simple terms, printing money), said she had an open mind. And that she would seriously begin to work on the rationalization of spending, given that government revenue is likely to be severely affected by the pandemic, and the running of the bulls.
“I have to be ready (fwd)…because no one knows how this is going to happen, how this is going to end, of how they are going to check out. So, obviously, I have to be ready, I can’t end my story with these ads,” Sitharaman told The Indian Express in an interview. She was responding to a question on whether the government is the preservation of the spending power of fire for the future.
She said that given the nature of the pandemic, she had to be ready at all times because more than 10 months left for the financial year 2020-21 to close.
When asked if the deficit of monetization that was on his table, Sitharaman said: “… I have kept myself open, as we go, we have to see how things develop. Do you or does anyone for that matter know how this pandemic is going to bread? Or it has started to shrink… Then you may guess that will be around in December then there is a point in which I said that all right, now I have to think about that. But we don’t even know if it has started to retract yet and it is 10 months old. So I have to watch as I go and be ready for anything. By what I have said this now, I am preparing myself for anything.”
In a previous interview to Cogencis, a cable of the agency, on 27 April, the Reserve Bank of India Governor Shaktikanta Das also had said that the central bank had not taken a view yet on the monetization of the deficit. “We have to deal with it, taking into account the reality of the operations, the need to preserve the strength of RBI’s balance sheet, and more importantly, the goal of macroeconomic stability, our primary mandate,” Das had said.
The Minister of finance, Nirmala Sitharaman addressed five press conferences last week to announce India’s Rs 20 lakh crore AtmaNirbhar package. (Express Photo By Anil Sharma)
Deficit monetization simply means that the Reserve Bank of India directly from the funds of the Central government deficit. Until 1997, the government used to sell securities — ad hoc group of the Treasury-Accounts — directly to the RBI, and not participants in the financial market. This allowed the government of the printing technique equivalent amount of currency to cover its budget deficit.
While several research teams such as NCAER and Goldman Sachs have projected that the economy will contract this year, Sitharaman said, as far as his ministry was concerned, it was too early to make an assessment.
“It’s too early for me to even venture a response. We sat down to talk about many things, this was also something that (came up for discussion). I can’t (do an assessment of now), I presented a Budget in February, not even two months ago. Many assumptions of my budget now is going to be questioned, reset, etc”.
The Minister of Finance said that she had already reset the government’s borrowing programming. “So that is not possible, it will be sensible for me even to do an evaluation, saying that this is where the economy is going to be, this is the extent to which the economy will contract. No, not now. I prefer to stay open and see how things are going and to make evaluation a little later,” he said.
Responding to criticism that the tax relief extended by the government was too low (The Indian Express estimated that at least 1.1 percent of GDP), Sitharaman said, “everyone has the right to make an assessment. I have not hid anything from the public, I have been told that this is how I’ve done my job, how it is spread, this is the liquidity, Now if there are expectations that the budget, what is your disbursement — let me tell you that this is the Government of India, Ministry of Finance, dealing with public money. Is this ever going to hide from anyone?”
To a question on why the government did not consider the possibility of making large cash transfers — i.e. around rs 3,000 – to migrants, to relieve the distress, the Minister of Finance said, “I have no objection to this proposal. I repeat my answer, yes it was a suggestion that we have heard, we have taken into account, we have thought about it, and a way to extend the banks to get first without any additional guarantees for each small unit, let them refuse (to take), but approach to giving, automatic is the word I use, what was intended? Its goal is to raise some money to cover the fixed cost, it is aimed to give some money to make sure that some of payment of wages are made. So that is what we have done. I have been assured that the banks will extend. Yes, it is a loan, is a credit, yes, is not a subsidy. But that is what I am asking, grants for how many, how much?”
With tax revenue well below stress due to the strong contraction, Sitharaman said, she was going to train his attention on cutting non-essential expenses. “We started the exercise before Covid, because at that time the Finance Committee was talking to us (informally) that you can rationalize, and even by the time that we were looking at the economy. You need more thrust, was slowing down, we could see the green shoots, but we still had to do a lot more. We had begun to that exercise. Yes, now I’m going to be doing everything more seriously,” he said.
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