‘Private investments are flowing into sunrise sectors’

India's Union Finance Minister Nirmala Sitharaman. (Mint)
India's Union Finance Minister Nirmala Sitharaman. (Mint)


As India races to become the world’s third-largest economy, rural areas are attracting more labourers, and new age sectors rather than conventional ones are luring in more private investments, finance minister Nirmala Sitharaman said pointing to some of the transformations the economy is undergoing

India’s economy is going through a structural transformation and conventional paradigms are being challenged, finance minister Nirmala Sitharaman said in an post-budget interview with Mint, explaining how the government is navigating these changes. Sitharaman also pointed to fundamental shifts happening in India’s rural and urban landscape, and said more comprehensive data is needed to assess these and respond accordingly.

Businesses and banks are now more prepared than ever for new investments into the economy, the minister said, acknowledging that more private investments are flowing into new-age sectors than into conventional industries. Sitharaman also said the government is prepared to address any impact on the rural economy due to a projected slowdown in farm sector output this fiscal year due to erratic monsoons. Edited excerpts:


The recent multidimensional poverty numbers are impressive. That said, we see that private consumption, which accounts for 60% of GDP, is likely to grow at only 4.4% in FY24, as per the first advance estimates. Does that concern you? What is your assessment?

These are definitely figures that keep having lots of ups and downs. It is also a reflection of the economy actually going through a lot of shifts [and] changes. The paradigms are themselves being challenged.

I will take a very simple example. Rural workers move to urban areas, and during the critical season of harvest they go back to the village; these are things we’ve heard over the decades. Now, post-covid, many of those who had been in urban areas and acquired some kind of skillset, each at his or her own level, under some compulsion, are now saying that the rural areas themselves are giving them opportunities to utilise and monetise their skills.

Many of them have not even returned [to urban areas]. This is not my assessment. Industry representatives tell me that sets of people who went back [to rural areas] have not come back. They also say even sets of people with similar skills are not actually coming back in the numbers in which they used to come back.

So, [for] the industries that benefited from several of these migrant labourers, imparting skills to whom has been meaningful because they immediately contributed to those industries, [migrant labourers] are no longer available for them. These kinds of rapid changes to the fundamental trends which we assumed earlier, and which we tend to assume even now, are happening.

But if that is happening are we able to measure that? Are we able to take into account such changes? I think we are at a stage where a movement from one position is happening towards a different position, and till such a time that transition comes somewhere close to ‘yes , it is settling in’, it will be very difficult to say what is happening.

This is something all of us have felt, that there has been a structural transformation in rural areas. The problem is we’re not able to measure it properly. But anecdotally, for instance, we know that even for services, in rural areas, there is demand that was not there previously. So is there a plan to have better data, because that will really help sharpen our policymaking?

Data is something that the government is definitely working on. We need to have a lot more comprehensive, credible data, and also data that captures these kinds of changes.

One improvement is in the labour force surveys, which is coming out of the labour department. I think that is a vastly improved version, which gives you a fairly good picture of labour. But that is only [for] formal sector labour. We have not captured the informal sector as yet.

So yes, I agree. The requirement for credible [and] comprehensive data can never be overestimated.

So you’re saying that a structural kind of transformation is taking place?


Is that why the Periodic Labour Force Survey figures show that the proportion of people in agriculture is actually increasing?
Agriculture and related activities are witnessing a significant adaptation to changing methods and practices.

Agricultural equipment manufacturers tell me they have now found a very successful business model in the villages, where, let’s say, at a panchayat level, under which a few villages will be, [the manufacturers] are looking for the youth from farmer families, to whom they will give a cluster of what they produce—agricultural equipment of various types.

They give it to them, train them to use it, and they don’t need to do anything other than finding people who want to use the equipment on hire. They take it for a day, or for a few days at the time of sowing, weeding, or harvesting. They are also trained to operate them. They get the wages. They also get a commission. And the company gradually keeps giving them more and more equipment, all of which will be useful for agriculture and related activities.


Post-covid, many rural workers who had been in urban areas and acquired some kind of skillset are now saying that the rural areas themselves are giving them opportunities to utilise and monetise their skills.

I would think this is a kind of employment where the family of the farmer benefits by additional earning. They are also capturing the requirement of the entire area and modernisation is happening. It requires more people to even mechanise the place.

The first assumption would be, coming from a socialist era, all of us would think mechanisation will displace workers. On the contrary, now the workers are there, they are working at the farm with machines. So mechanisation has not resulted in throwing away [workers]. It partly explains why there are more people now reporting into agriculture.

I think we are at the cusp of a big shift in the way in which agriculture and rural economies [are] operating—with the help of their own people, yet with machines coming in from urban areas.

How does this square with demand for jobs under the National Rural Employment Guarantee Act (NREGA) also increasing?

It’s not increasing everywhere. At the same time, it will increase because there are always seasons when rural area activities will be at a low. In the last 10 years, this has become one of the ways in which you can go contribute and earn; so names get added.

But equally, we also have to note that in some states [NREGA] has been targeted as one of the resources coming from the Centre. The Comptroller and Auditor-General of India has pointed out that if you understand the rough estimate of the amount that is likely to come to your state, demand matches or exceeds that.

What does that say? We need to understand what actually is happening on the ground on NREGA. We will never deny even one penny. If it is required, yes, you will get it. But who explains the malpractice? Who explains to you that people who don’t even exist are getting onto the job card?

So we need to be clear. If we are using these as indicators to measure economic activity, you can’t equally tell me that ‘NREGA demand is going up’, [and] at the same time tell me ‘rural demand is in some cases increasing, in some cases not increasing’.


We need to understand what actually is happening on the ground on NREGA. We will never deny even one penny. But who explains the malpractice?

The corollary of cause-and-effect does not always work out. Then how do agricultural equipment manufacturers’ books show that there’s demand [in rural areas] and their business is flourishing because of that demand?

Business would not flourish for an agricultural equipment manufacturer if agricultural activity has come down to its lowest. So if fast moving consumer durable goods are one indicator of rural demand, I want to know is this [farm equipment producers’ business] an indicator or not?

The Centre’s capital expenditure increase has been widely lauded and is seen as a very effective way of boosting growth—the way we have come out of the pandemic while improving the quality of expenditure. But that said, for the current fiscal year, it won’t be utilised fully. Is there a limit to the absorption capacity of the economy?

From a low base when we spend 30% more and reach 10 lakh crore, do you expect another 30% increase over 10 lakh crore? On a higher base, it will be proportionately increased. It can’t be like when I am lifting it from 3 lakh crore to 10 lakh crore, since I’ve done that, similarly I should do it next. That cannot happen.

Also, even when I reached 10 lakh crore, it took me quite a lot of monitoring. When you talk of capital expenditure, they are long-term projects, at least medium-term.

So the money that is given will have to be used for creating that asset over a period of 24-36 months at least, or even longer sometimes. But the condition that we put was, you spend that money within 12 months. My monitoring clearly showed me that wherever they could use it up within 12 months, people have done brilliantly. And, therefore, they utilised it.

States, for instance, when I gave the special assistance of 50-year interest-free loans also showed great enthusiasm. Many of the projects have been completed. We also said if there was a project that has commenced sometime [before], it’s almost two-thirds over [and] if for the last one-third you want to use this amount, use it, at least complete that project.


The condition that we put was, you spend that money within 12 months. My monitoring clearly showed me that wherever they could use it up within 12 months, people have done brilliantly.

The first two years showed terrific completion and achieved full utilisation of outlay. Now they’re looking at projects that can be completed within a 12-month period because you can’t leave it unfinished. Therefore the question of how much more can they absorb within 12 months.

I am not using that as a reason to say I will reduce the amount; I have given an 11% higher outlay for you. But if that appears to you as nothing great, it doesn’t work that way. From a higher base, 11% is quite a big hike. 11 lakh crore is a big amount. About 3.4% of your GDP.

You previously mentioned that at some point the increase in government capex will also help attract private investment. In this Budget you said that you are beginning to see signs of that happening. Do you think private investors will finally come to the party? Because they have been a little slow.

Again, this whole thought of new projects, sunrise sectors, where newer markets are available, where the world is shifting towards areas like renewable energy, where incentives like production-linked incentives [exist], investments are coming into those areas. There is a clear sign of that.

When you reduce the corporate tax for setting up newer industries, that benefit accrues, PLI benefits accrue, sunrise sectors have been announced and benefits accrue there. So private sector investment can be seen in all these areas [including in] big-ticket items.

But if you are going to search only in cement and old steel factories, no.

What kind of investment-GDP ratio do you think is necessary to push India’s growth rate to the next level? In the 2000s, this ratio went up to as high as 39%. Now in the last 2-3 years again, it has risen to around 35%.

I don’t think there’s a luxury for me to choose the sectors and say if it happens here it will be fine for me. Given the PM’s vision that we need to be a developed country by 2047, every sector has to contribute and every region has to contribute, and that is why this emphasis on the East [in the Budget].

You said investments are coming in sunrise sectors, but these are highly efficient and technology-driven industries. Automation and artificial intelligence are central to new businesses. So the kind of job creation there may not be very commensurate with the kind of investments coming in. So how do we address the employment issue?

You have to address the unemployment issue, no doubt. But the approach that you are taking tells me that you think jobs are only there [in these areas]. First of all, artificial intelligence also requires human intervention. It’s not going to operate on its own; you have to drive it to have something coming out of it.

Second, the question [asked earlier] was on investment. The question was not on investment that yields intensive job creation. Do you want investment or not? Yes, of course, we have a concern that we need to have jobs to be accommodated.


When investments come, even for AI that may not give many jobs, those investments will create indirect jobs as well.

Investment, when it is being answered, it doesn’t mean that I’m doing it at the cost of the workforce. Investment also has to happen. If [investment] brings jobs together, it’s very well. But at least when investment comes, even as you say, for AI, and even as you say, it may not give many jobs, those are getting located in an area. It is going to create indirect jobs as well.

It’s not going to be as though this industry is going to come, and locate itself with nothing to do with the rest of the world around it. We cannot be so black and white in these sorts of things. It is a layered debate. You want investment, you want jobs, and then you want meaningful jobs, and then you want rewarding, highly rewarding jobs. These are layers to be addressed.

Personal income tax over the last couple of years has emerged as the single-largest source of revenue on the direct tax side. But the top 3% of taxpayers are still contributing 50% of that personal income tax, and taxpayers are only still 2.2% of the overall tax base. Does the narrowness of the tax base worry you? Also, all the reforms you have done on the corporate tax side, do you see incremental gains from that? Do you see that to be kind of limited?

You are talking about the same period when we were coming out of covid. When we gave the tax concessions, they were themselves coming out of the twin balance sheet problem that we inherited. So how many asks would you have of an industry that lived through that period?

I think the debate will now have to be that, they have come out of the twin balance sheet problem, that banks have also come out of that problem, from now what. Rather than, hey you gave in 2019 [the] corporate tax reduction, hey the twin balance sheet problem was in 2014, why are they not out of it? It cannot be answered like that.

It took this many number of years for them to come out [of those problems]. It took all these years to get that all sorted. Banks are making profit, companies have cleaned up their balance sheets. Today they are able to think in terms of newer investment. We have given them this tax concession, sunrise sectors are getting PLI, you will see them coming up.

Normally when any economy grows, you need a couple of really big banks. For an economy that is soon going to be the third-largest, we don’t have a bank of that size. Since the government is the primary shareholder of the entire public sector banking sector, is there going to be a move to effect some mergers and create at least one or two of these really big banks?

By 2019 itself, we had merged banks to make them big. I quite agree with you that we need bigger, larger banks. We need more SBI-sized banks in India.

Maybe three times the size of SBI (State Bank of India).

Never mind, at least we aim at the biggest bank India has. So we need large banks, no doubt. And we need to create an ecosystem where banks can function professionally. Larger banks can also come into this country. So yes, we need [big banks], there’s no second thought. We need to have the atmosphere created for more people to get into banking.

The second question is on the debt market. Our debt market is still much better than it was, but it is not commensurate with what the third-largest economy in the world should have. What are your plans to deepen the debt market?

Actually, since a couple of years, there’s been a lot of work together with both RBI and Sebi in creating such an environment, and also bringing in more asset managers into this country. To deepen the bond market, I’ve had conversations with Sebi. They’re doing quite a lot.

The reserve bank itself has come up with its own understanding of how, both for government securities and private borrowing, we will be able to have a wider market. They have created some kind of a platform through which people can access, [where] large creditors can come in and play. So there’s a lot of work that has happened.

I think the JPMorgan inclusion (of Indian government bonds in JPMorgan's government bond index-emerging markets) is also going to give us access to cheaper, easier flowing money. Because once you are listed, it is almost as though automatically money comes in, and that benefit, when it accrues, India’s bond markets [will] get deepened.

You have proposed to withdraw small income tax demands. But the overall number of taxes under dispute is around 12.2 lakh crore. And we have seen a big bump-up in disputes the last couple of years despite all the steps taken to ease complaints.

The bump-up is also because there was one major case in the Supreme Court that gave a direction to issue all the [tax] notices before the time expired. So we had to give it. Otherwise we would have had a timelapse problem. So the bump-up is not because we are happy to send the notice, we had to (do so) because we were duty-bound to send it.

In your budget speech, you spoke about the next generation reforms in amrit kaal. What are these focus areas?

Every area where there is burdensome compliance, every area that requires transparency, every area that requires ease of living for the citizen will all have to be taken up. What other focus could there be?

One of the things that many people noticed when you were presenting the budget was the confidence with which it was presented. It did not seem like an election-year budget. Do you think we are finally reaching a stage where it’s possible to segregate economics from politics in this country?

Economics and politics may not be completely detached from one another. I don’t see that happening because if economics is good, it is going to play in the minds of the people during an election. Like the way now inclusive development is playing in the minds of the people, and therefore they are willing to bless us again. I believe strongly that they would bless us again.


Complete detachment of economics and politics may never happen because even if as a political party you don’t want to talk about your work, people realise it.

A re-election of the NDA will be on the basis of economics, governance, performance, the understanding that inclusivity in growth is important, and serving that section which needs to be served with fundamental basic necessities being met.

So complete detachment of economics and politics may not work because just as we would like it to work when it is all good, people do remember when it doesn’t work. Complete detachment may never happen because even if as a political party you don’t want to talk about it people realise. It will have a bearing.

On what basis will eligibility of beneficiaries for the middle class housing scheme that you announced in the budget be decided?

The departments will work on it. The broad classification that was already announced by the prime minister was those who are living in rented houses, those who are living in chawls, those who are living in unregulated colonies, will all be covered. So the scheme will cover all of them.

You are sticking to the fiscal glide path and we are on course to reduce the fiscal deficit to 4.5% of GDP by FY26. That is still much higher than the Fiscal Responsibility and Budget Management targets. Do you think that the FRBM Act is outdated and that a 3% target is very idealistic? For a country in this stage of development and where we aspire to be, that we need to actually run a deficit that is 4% or 4.5%?

These are issues of a larger debate. I do remember during covid the number of experts who would otherwise have asked us to be prudent and be careful, who had said, “Print rupee, print money, give it to everybody", who today probably even tell us, “don’t invest in manufacturing at all. India deserves to be only focusing on the service sector", and who thought “we will not even touch 5% growth".

I am not seeking to make a claim about, ‘oh, I’ve done this, I’ve done that’. But India is a very layered country. It’s complex. Even as you’re talking about rapid speed with which the economy should grow, you have sections to whom we have to give bare necessities as well. But that doesn’t mean that only the poor are being attended to.

When you make a policy that is going to benefit the industries to set up : “Oh, you’re favoring the rich, we are not doing anything for the poor", and when you give PM SVAnidhi, “Oh you want everybody to be pakoda wallahs". This [reaction] can’t be right. (PM SVAnidhi is a micro-credit scheme for street vendors).


Even as you’re talking about rapid speed with which the economy should grow, you have sections to whom we have to give bare necessities as well. But that doesn’t mean that only the poor are being attended to.

Even as we take care of small businesses who think that’s what they want to do, without decrying, give them the help. As much as you want large banks, large industries, we are attending to all this. We are not choosing at one point in time to say, “No use, put down manufacturing, don’t care about them, [do] only services." We are attending to all.

That’s the approach for which I would like to credit the prime minister. Don’t leave any one section untouched. We will attend to each one of them according to their requirements. Not impose a decision of the government saying, “you will do this, you should do this". No, do what you want to do. We are with you.

Are we going to see any more new productivity-linked incentive schemes, or are we done in terms of new PLIs for manufacturing?

We don’t know yet. Some people want [it], some people have not asked. Government has not taken a call. Let’s see.

What is your assessment of how PLIs have performed?

Of the given PLIs, I think some of them have performed very well. Some others are alright. A few are yet to take off. So there are good and really better ones.

When you speak about uncertainty, normally if you look at companies, everyone says that in uncertain times, the only thing to do is to have a good long-term goal. For you, 2047 is that long-term goal. So everything you do in the budget, all policies are aimed at that?

Absolutely. The next generation of Indians should not see what we are seeing. At least we are seeing good things now. In our childhood, we had to wait for a phone connection. We had to wait for a scooter to be bought. We had to pay in advance and wait 24 months to get a scooter.


We need an India which can say, 'We are as good as the best in the world.'

I remember during my junior days, I don’t know if I’ve said this to the media, Piaggio scooter was just then launched. And a few students who had money in their pocket, people who had money coming from home… the moment this was announced, some of them went, paid the advance, and got this [scooter]. When actually this scooter was ready to be delivered, they sold it to people who wanted it, at a premium. So that was that India.

Today that’s not the case. You can just walk in and say, “I want this." That [earlier] kind of India should never be the India we leave for our children. We need an India which can say, “We are as good as the best in the world."


Interview by Utpal Bhaskar, Gireesh Chandra Prasad, Ravi Krishnan, and Rajeev Jayaswal. Transcribed by Vageesh Thirumalai.

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