Indian economy needs skilling effort with industry involvement, says Nirmala Sitharaman

Nirmala Sitharaman on Indian economy and Budget 2021
The interest of female labour force is at the heart of government policies -- the labour codes and the PLI scheme will help those sectors in which participation of women is high, says finance minister Nirmala Sitharaman.

Finance minister Nirmala Sitharaman had a free-wheeling interaction with the students of the Indian Institute of Management Ahmedabad (IIMA) on February 25. She fielded questions on a wide range of topics including the prospects for Indian economy, Budget 2021 proposals, fuel prices, the government’s borrowing programme, skilling India’s workforce and the rising fuel prices. Here’s the second part of the edited excerpts:

The government seems to be enhancing human capital in the Indian economy through short-term skilling programmes. What are your views on the progress of this plan on the demand side? Are these skilled people actually employable by companies? How is the government planning to increase employability potential of the country’s youth?

We don’t have a one-size-fits-all kind of approach on this. I am answering from what I have heard on the ground. These small MSME associations have come forward to train higher secondary students and engineering students in their own setups. These industry clusters could be of small and medium industries or those of aero-engine component manufacturers, or textile mills. Each of them has their own requirements and they are willing to train their future employees from schools, polytechnics, and engineering colleges.

There is participation from the government as well in skilling of the needy like the migrant workers who have gone back to their villages during the pandemic who took up MNREGA work. Their skilling requirements are different, but still they approach authorised centres that are not attached to their employers or future employers.

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I see success in the clusters where the programme is industry driven. If they train 500 people, they most often end up absorbing 350 of them in their own units. The rest are qualified to move around the country wherever jobs are available. I am yet to see skilling and upgrading of those who have moved back to their villages through a standardised training centre. Skilling driven by industry associations is more specific and to the point.

These people are getting employed far more often and in far more bigger numbers than those who get standardised training. That itself is a reiteration of the point that drove us to make Budget 2021 the way we made it. Unless there is private sector participation in what the government does, the real change is difficult to happen.

When is the government planning to reduce the cesses on fuel? Every time I go to a petrol pump, I feel sad… Even at the height of the Covid-19 pandemic when global crude prices were down, fuel prices in India were still rising. The government is milking fuel cess to generate revenues. Will this change anytime soon?

It’s not just the cess, you have an excise duty of the Centre, then you have a VAT levied by the state which is percentage driven. We can bicker about who earns more. Even though you are right to say that the Centre earns more, 40% of everything that the centre earns go to the state. I am left with only a portion of the total amount.

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So, there is just no hiding the fact that revenue is earned. And it’s not just me. You ask any state, there is revenue there. There is revenue consideration, both for the Centre and the states. I agree that the more the fuels cost, the more will be the inflation. If the Centre cuts taxes first, then the states may or may not follow suit. If we want the consumers not to bear so much burden on this score, it is up to both the Centre and the states.

Defence and interest payments constitute about 40% of the government expenditure, leaving little flexibility. The government has increased its reliance on small savings schemes that have a greater interest repayment period than bonds. So how is the government planning to coordinate with the RBI in this matter because this may affect monetary transmission policies as well.

In this budget, we have made it clear that the borrowings from National Saving Scheme will at least be on the book. I am not saying that we won’t borrow at all, but it will be put on the Budget for everyone to see. What is the extent of borrowing and why is it costly? Because the returns on NSF is assured, the borrowing will be at a high rate. So, there is actually a lot of incentive for the government to borrow from elsewhere.

So, if it is being appreciated that we have brought the government borrowings on to the books, it means that we are keen on going into the market for funds at market determined rates. So, that itself gives an indication that we want the market forces to come into play. Once you have decided to open up that way, you are allowing a certain justified approach to borrowings. This assures the taxpayer that we are not borrowing at high rates. The RBI understands it and we were borrowing back-to-back for the GST compensation to states at reasonable rates.

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You said the upskilling of labour force should be industry driven for the Indian economy to reap benefits. Only last week, the UK Supreme Court ruled against Uber, saying Uber drivers are actually workers and they are fully entitled to benefits. Similarly, the budget has also mentioned the gig economy. So, in this era of automation and shorter-term jobs that are associated with the gig economy, how is the government thinking of upskilling such workers because a lot of rural workers migrate to the cities and have these jobs with very little security. How are you thinking of upskilling this kind of people?

Upskilling them and providing a certain level of social security is a priority, the four labour codes and Budget 2021 have given a lot consideration to the gig workers. There is definitely a set of factors that come into play, which will make the industries go through a lot of reset themselves. When they are doing a reset, the business model will also go through rapid changes.

You also hear from industry that a number of them are now also getting into AI and robotics that will also have a bearing on recruitment that they undertake. They are moving towards contractual jobs, and then the question is not just skilling, but also about social security. We have made provision in the labour codes so that even contractual workers will get benefits like permanent employees. We have brought that element into the labour codes. Budget 2021 wanted to offer gig workers some social security. That is why Ayushman Bharat and other schemes are being implemented on a priority basis.

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Budget 2021 seems to have chosen the path of greater investment in infrastructure over direct assistance to vulnerable sections of the society. What was the rationale behind this move?

How are you bring these two on the same platter?

We are talking in terms of the multiplier effect of infrastructure investment…

So, the multiplier effect of infrastructure funding has been given priority over direct benefit to the poor sections of the society in terms of employment opportunities. Multiplier effect is the reason as you put in the question yourself. When I spend money on infrastructure that money goes into the hands of those who are getting employed. The money starts flowing from the planning stage. That’s the logic behind choosing a sector that will have a multiplier effect which is CAPEX driven and asset creating. The workers can be un-skilled, semi-skilled and completely skilled and even the blue-collar workers are coming in there.

It has been acknowledged that women have been disproportionately affected by the pandemic. Historically the female labour force participation in the Indian economy has been abysmally low. We notice that there is a huge thrust on textile parks and the PLI scheme. We are sort of upgrading manufacturing industries with high labour force participation. Is there any measure that the government is thinking about to solve this problem because we are really losing out on a lot of economic value here?

I am glad you’re asking that question. I’ll just go very briefly back to the labour codes. We have made the labour codes in such a way that all restrictions on women workers are removed. Women will be allowed to work even in night shifts. When they are working in night shifts, extra precautions on their security and safety will be taken including the usual pick up and drop facilities. You are right in quoting the example of mega textile parks. Apart from the sectors that we have chosen for the PLI scheme, we were discussing extension of PLI scheme to more.

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The impact of labour and the women labourforce was discussed even as the project was being prepared for the Cabinet. So, there is a lot of concern in the government and in the political executive about bringing women to formal work and we are making sure that the laws will facilitate their participation. Even before Covid-19 outbreak, we had extended more maternity benefits . The provisions in the labour code and the PLI scheme will help those sectors in which participation of women is high.

There has been a lot of debate on whether the RBI’s inflation targeting mandate is good for the Indian economy. Some people say that instead of targeting headline inflation, they should target core inflation. If the RBI has to support the government’s borrowing programme, the central bank may have to take actions that are directly in contradiction with their inflation mandate. What is your opinion on this?

I know a young Economist who has spent a lot of time in studying inflation targeting and whether inflation targeting is good for India’s growth. He has gone into details and I talked to him just before coming here. Inflation has rarely gone beyond 4% since the Narendra Modi government took charge in 2014. There was just one occasion when it touched 6% due to seasonal fluctuations in the prices of perishable commodities, which are a major factor that determines CPI and WPI inflation. Despite all the issues, inflation never went beyond acceptable limits. Yes, seasonal fluctuations have happened particularly on perishable goods. So, inflation targeting has been done well and there is a constant interaction with the RBI on it.

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Yours has been a very inspiring journey. You have done your M.Phil. from JNU and this Budget can be seen as one of the most market-friendly Budgets in the recent past. While you represent the BJP, your husband is from the Congress party. We would like to know how you maintain this fine balance? Also, do you have any advice for the students of IIM-A?

I never thought I’ll be asked this question. I thought you would ask me you are from JNU and how are you giving privatisation, free market, and opening up of private sector kind of a Budget. This is something that I always had conviction. Even in JNU where it was not normal not to be a communist, I was never into communism, socialism. I didn’t believe in it. I was very clear that individual enterprise needs the space and legitimate profit earning cannot be treated as evil and every individual should find a space to do what he wants to.

And coming into the BJP was very much consistent with my economic philosophy. I am glad that I am doing something that is consistent with my belief and economic philosophy. It’s just a beautiful coincidence that I am not doing something that I don’t believe in. And it was also for the party and the Prime Minister, who was doing all these things in Gujarat. I believe that the welfare of the people and public good is much more achievable when you give space for individuals and enterprises to do their businesses.

I like to tell the students of IIM Ahmedabad that you all are fortunate to be a part of an institution like this, to be able to have such a peer group and a camaraderie among yourselves. I would not like to advise you, but request you to spare some time for the country. Do your best, build your careers, but do spare some time for the country. India needs all your support, so do give it some direct time of yours. We need a bright, smart and fantastic India.

Read the first part of the interaction.