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Not trying to catch anyone, we want NRIs to be here and pay tax: FM

Finance Minister Sitharaman says the big drop in Sensex should not be seen as a reaction to the Budget, as the market was not in full force on Saturday. “We will have to wait till Monday,” she said.

Last Updated: Feb 02, 2020, 10.21 AM IST
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Watch: FM  N Sitharaman decodes Budget 2020 with Swaminathan Aiyar & Nayantara Rai
Watch: FM N Sitharaman decodes Budget 2020 with Swaminathan Aiyar & Nayantara Rai
The Budget has had a poor reaction from the market. Sensex is down almost 1,000 points. What do you think they have misunderstood or not properly understood? Is it lack of stimulus? Is it that the off-budget borrowing is so much that they are not impressed by your fiscal deficit figure?
To be fair to them, I think today the stock market was not in full force. I guess we will have to wait till Monday. I would not conclude anything from today’s reaction, As regards any of those factors that you are saying – stimulus for example – I thought we have been very responsible in the way in which we have given our numbers, not just by using the 0.5% forbearance clause, not just by saying it is time to splurge. We will do it, because it is important to show that we are spending, because the situation demands so.

Even in that, we have said very clearly that private investments will happen when it will happen. We fully appreciate that. Towards that, we have already given a corporate tax rate cut, and I am sure it will happen in due time. But in the meanwhile, should the government be spending or not? The government has been spending and the growth in capex in the last seven-eight months is there for everyone to see. Now, will we continue doing that? Yes, of course. The Prime Minister has spoken about Rs 100 lakh crore (investment) within the next five years. I have been stating that I am willing to do this upfront, as soon as I get a project. We have announced that 6,500 projects became part of the pipeline as of December 31. Our expenditure commitment on infrastructure is well on course. The stimulus is also partly through that.

You have given an ambitious disinvestment target. We are coming out of a year where we missed the disinvestment target. You are also relying a lot on the spectrum auction. Given the state of the telecom companies, the kind of noises being made by Vodafone, haven’t you been very ambitious on that front?
To be fair to the disinvestment department, it was July when I announced it and by February, they have done all the necessary leg work, tying up the loose ends. It is going to happen in a couple of months. Certainly, I will not benefit this financial year by their sale, but it is not that they are not doing anything. They have reached the EoI stage on Air India. In Concor and others, they are moving fast. Even as they are doing it, they have also been working on a completely different matter – the ETF. They have had success. We have to be fair to them. It is going to happen next financial year and the benefit of that is not going to accrue to me this year. That is the story.

Again and again, there is Budget announcement and nothing happens for three-four months. Somebody says half the year is over and we have not done anything. There is a rush to try and get the privatisation done in last one or two months. There should be a specific template to begin work on privatisation, so that when political issues are out of the way, it can start automatically within three or four months. Every single privatisation does not have to be unique.
I fully agree. That is where, this time, the disinvestment team that has been working on has been absolutely on course. The moment they got the clearance, they started moving. They have done the roadshows, the documents have been ready, legally vetted and the process is on. Now, that will be the template.

The names you gave, BPCL, Container Corporation. LIC have been mentioned. Any other names?
IDBI was also mentioned. I have read it out in the Budget.

I have addressed DDT. I have addressed personal income-tax. I have addressed corporate tax. All at a time, when you were telling me the situation is challenging, the economy is going through a tough time. In spite of all that, we have been bold enough to take a considered call on all this

-Nirmala Sitharaman



But as you said, you start in one year, it spills over. So, which are you going to start next year, which may then spill over?
Well, I am not commenting on your experience-based comment. But the fact is, in my case at least, between July and February, which is today, we have done considerable concrete work on Air India, BPCL and everything else. This template should not be put through the test of moving into a second financial year.

While we are talking about this, the US economy is in recovery mode. There is fear of flight of capital. You have, of course, taken a big step with the abolition of the dividend distribution tax (DDT). But do you think, more could have been done to make sure that our capital markets stay very robust? For example, there was big expectation on long-term capital gains tax (LTCG). As it is, we are not collecting that much on it, but it could have acted as a sentiment booster?
At this rate, you will tell me everything which has not been done and forget what I have done. Even before the day is over, you have forgotten what I have done in the form of removing DDT. I would want you to keep that alive for some more time, because that is aimed at the market.

Because of the fear of flight of capital...
That is all very well taken. The point is, I have addressed DDT. I have addressed personal income-tax. I have addressed corporate tax. All at a time, when you were telling me the situation is challenging, the economy is going through a tough time. In spite of all that, we have been bold enough to take a considered call on all this. I would appeal to you to highlight these rather than LTCG...

There is an attempt to catch rich people who are trying to escape tax and become NRIs. You have expanded the definition of NRI from 182 days abroad to 240 days abroad. It appears that if somebody is in the zero tax jurisdiction, he will pay tax on his all-India income, all-world income. This is an interesting idea. The question is, will people give up citizenship altogether and then lose whatever little you get? Do you have any number on how many people you think you can catch by this particular device, and also the revenue?
It is not a question of catching. It is more a question of recognising that here is an area in which for want of clarity, you are losing out on a lot of people, who are neither paying here nor paying elsewhere.

So it is very clear they want to escape tax?
Yes, but then if my taxes are now so favourable, I would rather have them be here, obviously because they have a market here, a base here. They have economic activity in their area of specialisation. I would want them to be here and pay tax also. Now if the rates are unfavourable and they are going out, you can blame me. I am making the rates favourable and I would rather have them come.

But no estimate of how many you will get and how much revenue?
In government, nothing works without estimates. Otherwise, it is not justified in the Cabinet, when we take a call. It has to be justified in the Cabinet also.

But for this entire rule that you have come out with, they must pay tax somewhere. You want them to pay tax here...
Being NRIs.

This is also a category which is perhaps under the super rich, 42% tax category. They are looking for cheaper tax domiciles, and that is why perhaps that they have gone. This is not a witch hunt, but the government’s attempt also is a surgical strike against black money.
No, that is not true. That is not true. I think this time I have used income-tax to send out the clear message and give a direction that middle income groups and lower middle income groups should have more money in their hands. And I have also taken this big call on removing a lot of exemptions, over the years 120 exemptions. Even before you go, I will give you a list of exemptions this country’s direct taxation code is laden with. We have removed about 70 of them. And because it is so indispensable, we have brought some into the newer system. I could have very well said that we will simplify direct taxation in another three or four years and we will come up with a very simple framework. But if I were to do it after three years, why say it and if I do it now, I will have to do it as much as clearly serving the purpose of simplifying the tax.

The point I was trying to make was you want to change the rules of residency, you have changed the number of days that will be counted for. Who will be an NRI and resident…
Yes, I understand your question.

But my point was also to make sure that in case of people who are used to not paying taxes, but who do their dhandha here, isn’t the real attempt to catch them?
I do not want to use the word catch. You are doing dhandha here, your business is here, your interests are here…

They are all to pay taxes…
Helping the country by paying a tax is not a punishment. If the rates are very high, yes it is a punishment. If I am bringing it down to reasonable rates, wouldn’t you want to give that money for building India?

The fertiliser subsidy has always been a very politically charged one. You have showed enough courage to say that you will bring down fertiliser subsidy. Hopefully, this will encourage the use of manure and other organic fertilisers. Having made the start, it is not clear to me how much fertiliser subsidy are you going to reduce this year. Do you see it going down to zero over the years?
We are, in fact, through the ministry, spending a lot of time trying to understand how best can it be rationalised. I have had quite a few of those sittings. I have not specified the numbers in the Budget, because we are talking to a lot of people to see how best it can be done. At the moment, even the modus is questionable. You are giving it through the companies. Alright, there was a time when you needed them. Even now, there is a lot of need for chemical fertilisers. Today, when the emphasis is moving towards organic fertilisers, we should see how there can be a reasonable combination of the two, rather than overloading our lands with chemical fertilisers.

As a young Indian, it was very heartening to hear phrases like artificial intelligence, data analytics in your Budget speech. You have given a big thrust to startups with what you have done with Esops as well as change of rules for tax reduction. But in the fine print, we also saw that there is going to be a 1% TDS levy on e-commerce transactions. Perhaps the government, which is so dedicated to Startup India and Digital India, is just seeing this as a new source of revenue. What is the rationale?
What is a TDS? If you are a taxpayer, that is going to be offset. It is not a new tax. There is no additional burden. If you are in the tax net, and that has got to be the offset, it is going to be set off. How do I, at all, have any trail of commercial transactions? Who at the end of the day is going to pay? Why should every TDS be seen as an additional tax when you are given an option to offset it.

I have argued for years that one of the lowest hanging fruits to collect tax that every Finance Minister loves is to increase the tax rate on cigarettes, because tobacco is a health hazard. But let us face it: beedis are as much a health hazard as cigarettes. The tax differential is huge and rising. I have seen calculations that if you equated the two over a few years, you can get 1.5-2% of GDP. Yet budget after budget, the differential between cigarettes and beedis goes up. Of course, the beedi industry has a larger employment potential. But should you be employing people to kill others? It is not the best way to employ people.
I agree there has got to be a lot of awareness building. There has got to be a lot of alternative jobs, which can be given to people. We have to spend a lot of time convincing people that they should look at industries that are healthier, activities that are healthier. Till then, it will have a direct bearing on a lot of people, who are sitting and working in the cottage industry mode and, therefore, sadly...

Talking of cottage industries, you are trying to give a thrust to MSMEs clearly by increasing customs duty. You talked about that in your Budget speech as well. How do you want to have a level-playing field? With this kind of protectionism, are you perhaps sending out a signal that Make in India, manufacturing, SMEs will only thrive when you increase customs duty? You have also done it on electric vehicle parts and things like that, when the auto sector is still in trouble?
There are two things which guided us to make that list for levying import duty. One, the kind of goods coming in are listed. There are goods which are manufactured in India, largely by MSMEs, and are certainly of equal, if not better, quality. In fact, most of them are final consumption goods. They are not raw materials, they are not intermediary products. Should we import goods which we are producing anyway in this country, only because they are coming dirt cheap? Is that something which we are going to have to live with? Or is it something which we can avoid? Are they essential to our consumption?

I will not allow Indian industries to die, particularly those which are in miniscule micro, medium sector. We will have to have both of them carefully balanced.

-Nirmala Sitharaman


Who is to decide what is essential? Yes, the consumer will have to decide, but does it mean he has to decide at the cost of dumping goods that are happening versus the Indian manufacturers? So, we have taken a call, and I have spent a lot of time on this. If they are raw material or if they are intermediaries, we have to be careful. Because it affects a lot of productivity and production capacities that exist in this country. Some of the dumped consumption goods are of very poor quality. There is no way an Indian industry can be helped to capture that market back again.

What you are saying goes completely against the fundamental premise of free trade.
I agree, absolutely. But dumping is not free trade either.

There is a WTO mechanism to take care of dumping. Dumping should not come into the argument, because there is a separate ability to do it. When you have an import duty, it applies to everybody, it is not applying only to the dumpers. Therefore, if you only catch the dumpers, that is a different matter, rather than having an import duty that applies to all. The question that you asked is if I can make, should I import it? The answer is yes. Otherwise, other people can make things that we export. Why should they buy it from us? You will get to a state where there is no international trade at all. We all go behind protectionist barriers and the net effect is a collapse of welfare for all. The whole point about this is you specialise in certain items, you do not produce others. You do not produce everything merely because you have had that capacity of producing it. To say, therefore, I should not import it, is like going back to the Nehru, Indira Gandhi regime, which utterly failed. I thought your regime, having learnt from that, will say I will not go back to that.
I certainly would not like to go back to that, but a mechanism exists not just in India but in any other country against dumping, which is so consistently happening, and will have to be strengthened. I will work to strengthen that but till then I will not allow Indian industries to die, particularly those which are in miniscule micro, medium sector. We will have to have both of them carefully balanced. All this balance should have happened a long time ago, and if that has not happened and we have industries which are struggling, at a time when Indian economy needs more jobs, to just turn away saying no I am in favour of free trade, damn with you, is not going to help the economy.

Is it correct also that if an employer’s contribution to the EPF goes beyond Rs 7 lakh, it is now going to be taxed? If that is indeed the case, what is the rationale behind that move, because we are looking at consumption and want to give more money to the people?
That is what we have done in most of the cases, yes.

So this is just something that…
Exemptions are being removed, that is about it. If you want to still be in the old system, you can continue to be in the old system.

I am guessing your mindset is that you want people eventually to...
But some of the exemptions, which have a slant towards employment, are continuing in the new system. Exemptions which have a slant towards small income-generating employers and so on. The list of exemptions will explain it to you.

The question I wanted to ask on behalf of all Indians is, should they start preparing themselves? Will there be a road map when all of this could be phased out?
In income-tax, yes. Eventually we should have a system which is going to be simpler, less burdensome both in compliance and also on tax incidence. I am looking at moving towards a simpler, easy compliance-based system.

On off-budget borrowing, you did not give a figure in the Budget speech. But there are people who say we need to count both fiscal deficit and off-budget borrowing. Could you give us the figures?
They will be attached in the annexure, Annexure 2…


Just briefly, is it substantial, is it rising?
The figures are given where they have to be given. I shall not burden the consolidated fund, where I do not need to burden them.

Real estate people said you have done nothing for real estate. This is one sector where every year people…
It is not true, I have given an extension of one more year…

You think that is enough?
For their tax holiday. Don’t you expect the government to give it for 10 years right at the beginning? Let them show the difference in one year now, and that one year is an extended one year. It was only applicable till this year. We have extended the tax holiday for one more year.

There was a proposal by some people that for a lot of these companies that are unable to finish projects, let us create a bad bank to take over all those and restart…
I have already given that scheme. Amounts have been released. I announced it, didn’t I? We have created a last-mile funding asset management investment mechanism, through which money for those incomplete projects will be given. The last number which was given to me two or three days ago, I do not want to recall it, but I will give you the information, the money is going into an escrow account. As and when they make progress on completing projects and sell them off, the money will be released to them. That was the mechanism I announced. Implementation has already started. These are incomplete projects all over the country, which have been taken up, provided they are RERA-registered.

You sent out a very strong message to all depositors today, saying your money is safe. You stressed on that and you have also decided that bank insurance should be done and you have also said there is no need for recapitalisation of banks?
No, I did not say that. I said banks have been amalgamated. In fact, there are two mentions; one is even later where we are trying to give them tax concessions because of the burden that they are bearing as a result of amalgamation. Here, amalgamations have happened, 10 banks have become four. They have been given funds for growth, they have been given recapitalisation funds. Rs 3,60,000 crore or something has been given in last few years. I have said all that. I did not say I would not give money for recapitalisation. As and when the situation arises, we will give.

So you will review the situation perhaps after the internal consolidation...
I have not stated any amount right upfront, but that does not mean I would not do. Rs 3,60,000 crore given in last few years and you think I am going to waste that?

That is taxpayer’s money as well?
So, I have to have a clear balance.

RBI transfers came as a godsend this financial year. There was a large dividend, and there was a one-time capital transfer. But certainly there could be further capital transfers too this year. Are you talking to RBI about further capital transfer or only a dividend?
Only a dividend, which comes normally by routine process. I have not started talking. I do not intend to start any talk with RBI on capital transfers.

Going into this Budget, how much pressure did you feel? Media did not help, calling it a now or never moment, growth at any cost. Did it get to you at any point? Did you feel it?
No, I think it was good that the media kept doing it. Because it kept the heat on all of us, and it also constantly gave us the input of what is being spoken in the markets, by the industry leaders, although we were also directly talking to all of them. It is nice that the media engage in details like this and I am quite okay with it.

So you were able to withstand our pressure? We can continue to do that. We will do more of it.
Keep it coming. Welcome.
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