Govt will not crowd out private sector; Budget 2021 selloff target realistic, assures FM

Finance minister Nirmala Sitharaman at a post Budget 2021 interaction with IIA students
The market is awash with liquidity and there is no threat of the government's borrowing programme crowding out private sector in the debt market, says the finance minister.

Budget 2021: Finance minister Nirmala Sitharaman interacted with the students of the Indian Institute of Management Ahmedabad (IIMA) on the theme, The Economic Rebound and the Indian Economy in 2021 and Beyond, on February 25. Hosted by IIMA’s JSW School of Public Policy, the session threw light on various aspects of the Indian economy including consumer confidence, financial markets, an uptick in manufacturing, education sector, PSU disinvestment, healthcare sector, fuel prices, as well as investment in infrastructure and agriculture. This is the first part of the edited excerpts:

What do you think of the crowding out effect on the private sector because of the massive government borrowing seen in Budget 2021? Second, India’s corporate bond market narrowed after the NBFC crisis, affecting the cost of funds and competitiveness of Indian companies. Is the government thinking of deepening the credit market to wean the companies away from bank credit?

I will answer the second question first. Yes, we started planning even before the pandemic broke out. From July 2019, we have been taking steps to deepen the bond market in India and the results are there for all of us to see.

Many Indian companies are raising their resources from the market. Even our public sector banks themselves have done so. The customary practice for the PSU banks all this while was to get their equity from the government. Once the infusion is done, they definitely look at using most of it for growth, and some, of course, for the necessary provisioning and so on. So, I thought they would be hesitant to hit the market, but they showed that they are capable of raising money themselves.

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So, today there is vibrancy in the market. And now the G-Secs are available for retail participation. Some would say it was already available and the retail participation was never stopped. But retail investors can now think in terms of buying government securities. That partly answers your first question — crowding out is not an issue now. The market is awash with liquidity and it is now a question of how effectively and quickly that is being brought into the debt market.

But that is not the question. The question is government borrowing is announced well in time as per a calendar and there is a certain predictability about it. So, the market is clued in and tuned into this. So, they know how to reorganize themselves. But today, many Indian companies are finding it easier to borrow from outside, leaving enough liquidity within the country.

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Budget 2021 has seen a 6.1% decline in education outlay, and this comes in the backdrop of the New Education Policy being rolled out. So, we would like to understand the rationale behind the spending cut. What steps will the government take to ensure quality education for youth?

We spent considerable time on health because of the pandemic and India’s health infrastructure needed that boost. So was education, also because there has been this desire to bring in digital learning in the last couple of years. There has been a desire to put education beyond brick and mortar schools. There has also been an emphasis at a higher education level. The desire was for twinning — you graduate in one particular place and the university is somewhere else. This is not just in higher education, but also in secondary and primary schools.

We wanted to make sure the spread of optical fibre network at the panchayat level to give that additional benefit to schools. Now if you were to categorise the funds under heads, there may be some doubt. I would want to underline the fact that the New Education Policy, the schemes under it, and the long-term vision under which the NEP 2020 looks at transforming Indian education received due consideration while making Budget 2021.

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Budget 2021 set a really impressive target for disinvestment. First, the PSUs that have been selected for divestment range from highly profitable PSUs such as BPCL and CONCOR to IDBI and Air India. You have missed divestment deadlines several years in the past. Last year, we missed the target by a wide margin maybe because of Covid-19. is the government confident of achieving the divestment target this year? Another question is that privatisation has not always helped and we have seen the experience of banks in India. So, can we think of separating ownership from control and getting professional management…

Again, I will answer the second question first. I agree with you. We are not on a spree to get out of every public sector unit. And the policy when it was announced, of course, clearly identified strategic/ core sectors. It listed out sectors such as atomic energy, space, power, banks, and telecommunication. And even in those sectors, private players will still be allowed to come in. But even after that, the public sector will not be totally removed. So, we are looking at a professionally run public sector.

When we envision a new India with two thirds young population, the public sector is not sufficient to meet the growing demands. So, the bare minimum presence we are talking about will ensure a big, scaled-up presence of public sector undertakings.

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So, it is a commitment from our side to ensure that you will have professionalised, well-managed, well-endowed public sector undertakings which will be nimble in their operations. So, your point about Singapore is well taken, but we do recognise that professionally run public sector undertakings would be able to stand up to competition. Those will be the public sector undertakings that will serve the purpose. Therefore, it is not worth continuing with, pardon me the expression, laggard PSUs. Taxpayers’ money runs them. And people who sit there are taking decisions for the people. Why can’t organisations owned by people be professionalised?

We are taking care of public sector undertakings and privatising some of them. And the list that you are referring to has not so many well performing PSUs. But some of them are good PSUs that are profit making. We want more of them to be run efficiently and some can go over to the private sector. The selection criteria weren’t only about profits and losses.

Yes, we didn’t achieve our targets — not just last year, but even the year before. Last year you can say it was Covid-19. And the year before it, I am answerable because, the economy was slowing down, there was no appetite in the market for disinvestment, there was no momentum yet for that kind of a purchase. So, no hesitation in saying that yes, I couldn’t achieve the target. But now when the appetite is better, and the stock market was doing well despite the pandemic, Budget 2021 has come up with a realistic number.

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The increase in health expenditure has been one of the brightest among the many bright spots in the Budget 2021. However, in the health expenditure, Rs 35,000 crore has been directed towards the sanitation drive as well as the Covid-19 vaccination. So, we are curious whether this increase in health expenditure is here to stay? How is the government planning to implement the vaccination drive?

I hope at least the vaccine component is not here to stay. Yes, we need to provide for the vaccination and I don’t want it to continue for the next few years. But, the commitment to have more funds for health will stay. India will sustain that kind of investment in health infrastructure. It’s a different argument altogether when we say that some countries with good health infrastructure struggled against the pandemic. But one can’t argue that India doesn’t need proper infrastructure for health.

A country like India can’t but invest more in health, health infrastructure. When I say health infrastructure, it is not just building hospitals, but also creating more institutions that prepare doctors, nurses and paramedical staff. This budget is different from every other budget earlier. It has looked at both super-speciality hospitals like AIIMS as well as the need for more primary healthcare centres. You also need a lot more tertiary healthcare sector.

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We discourage the demand for AIIMS-like hospitals everywhere, instead we are for having more primary healthcare centres as first points of call. We need more primary health centres with more general practitioners to avoid rush at super speciality hospitals. We are giving priority to creating wellness centres, and district level hospitals that can take care of virology related illnesses with testing labs.

So, the budget actually has gone for more virus testing centres at the district level. So, the infrastructure is not just going to be AIIMS-like large super speciality hospitals, but also wellness centres, primary healthcare centres, and more testing labs to taken on various types of viruses that may attack us in the future. It has taken a holistic approach of preventive healthcare, curative care and wellness. We have made provision for all the three and the preventive focus justifies bringing of sanitation and water management into health budget.

It will still remain with the various ministries as they are now. So, when some opposition party asked me what justifies bringing sanitation into health, I said we’ve taken this holistic approach. I think a pandemic can break out any time. Our commitment to the holistic approach and higher health budget is here to stay.

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