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India would take a balanced approach, with bold but prudent steps, to drive economic growth and expects its China-plus-one strategy to work, finance secretary T.V. Somanathan said in an interview. Regarding the US-based Hindenburg Research’s accusations of share price manipulation and accounting fraud by Adani Group companies, Somanathan said public financial institutions’ exposure to any single firm is minimal and poses no risk to depositors or policyholders. He further added that the Centre’s production-linked incentives are deliberate strategic measures aimed at directing new production capacity and are not subsidies to companies. Edited excerpts:

The Adani group is facing fraud allegations. Will the government seek information from the company?

Public finance institutions’ exposure to any one company is so small that it is not at all a risk for the depositors or policyholders of the public financial institutions. I can categorically say that there is no risk to them.

Usually, the beneficial economic results of capex come with a lag. In the meantime, is there anything else that the government could do?

The demand and employment effects of capital expenditure are immediate. It is the growth effects that come with a lag. While the asset is being constructed, it immediately creates some demand and some employment to the extent the money is spent. It is the multiplier effect (of infrastructure spending) that comes later. That may take till the asset is completed and it gets into operation; then, you will see the full results. That will take a longer time. I don’t see what more could be done unless we decide to give up fiscal prudence and go even further.

India is a bright spot in terms of growth, but the animal spirits of industry are still not alive. Your comments?

There is a lot of evidence of micro, small and medium enterprises investing quite well. It is the big sector which is not. The economic survey seems to think it is changing. (The survey said the government’s robust capex could bring back the industry’s animal spirits, with early signs of private investment rebound already visible.)

What is the biggest takeaway from this budget?

India will be bold in its push for growth without compromising on macroeconomic stability. We will be bold, but we will also be prudent. That has been our approach to the budget.

Commodity prices and extreme weather conditions have brought uncertainty to budget numbers. Is there anything that we can insulate ourselves, and what is the strategy for it?

It is difficult to insulate ourselves because we are totally dependent on imports for much of our oil requirement and a considerable part of our non-urea fertilizers. We can go for a long-term contract for fertilizers, which we are doing. And there are some efforts to diversify our petroleum sourcing. But that does not completely take away the volatility. We have some (hydrocarbon) assets, but if those assets are in strategically difficult areas, then they become unusable. I think these are things we will have to live with.

For the next fiscal, you must have thought of front-loading capex. So how much of the 10 trillion might we spend in the first half?

Typically, the expenditure gets backloaded in the fiscal. So if we can do 50:50, it will be good. I think a reasonable target is to spend 50% in the first half. It may not seem like front-loading, but it is front-loading because the natural cycle is the other way. The natural cycle is 40:60. So if we could shift it to 50:50, we would have front-loaded. We are accelerating the process by, for instance, the guidelines of the 1.37 trillion will be issued very soon, even before the start of the fiscal. So we are trying to accelerate everything to the extent possible.

In the revised estimate for FY23, there is a minor saving in terms of capex. Are you confident of spending the full extent of allocated funds?

That (the minor saving) is mainly on the 1 trillion loan for states which is going to be 76,000 crore. The central sector is going to reach the target.

For the next year, are you confident of full spending?

I am reasonably confident. I think the Central spending will go through. Spending by states will also go through, but in states, certain aspects have a conditionality that is kept deliberately. That is, we want something (reforms) to be achieved and then give the funds. That takes a bit of time. Next year, it may be faster as they are also used to the system.

What is your assessment of the PLI scheme’s performance? It was widely expected that more sectors would be included in the Budget.

I think that is a wrong expectation. PLI is expected to be selective and focused on a few areas, and there is a certain target level of fiscal outlay, which is fixed for which different sectors have to compete. Some have been announced, and some are being assessed by the NITI Ayog and the DPIIT. But it is not ever-expanding. There are specific parameters. One, where there is an industry which has a lot of domestic demand and is sourced from abroad, and if it is set up here and it is done at a scale where component suppliers and the ecosystem can be built around them, then we can be very competitive in that industry. And we can replace imports with competitive domestic production. The second type of PLI is where there is a strategic need for domestic production. For example, advanced pharma intermediates for drugs and medical devices. We don’t want to be in a situation where we don’t get raw materials for antibiotics because we have to import them. Here, the criterion is not cost competitiveness. The main criterion is strategic availability domestically. The third kind of PLI is in the sunrise sectors, where India has an opportunity to become a global leader without having to catch up with anyone. If you take green hydrogen or lithium-ion batteries, we are not behind (anyone) since it is a new technology. PLI will be a selective approach.

We are positioning India as an alternative to China and Europe, but some other Asian countries, like Vietnam, seem to do well in that regard. Your comments?

The global investment will eventually come because India is the only effective alternative that can offer volume.

High natural gas price affects subsidy outgo. What is the outlook for the next fiscal?

Gas price affects urea price. We are assuming that next year’s average cost of fertilizers will be 20% lower than this year, which I think is very reasonable given today’s prevailing prices. We have allocated 2.25 trillion this year, and next year it is 1.75 lakh crore. Prices have already come down from what it was earlier this year.

The government is behind the divestment target. Your comments?

Divestments which can be done without legislation, are being done. The ones which require legislation are not coming through. There are legislative constraints. Besides, the assets are still here. So, IDBI will go through, but the rest is unlikely.

Dilasha Seth contributed to the story.

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