M.K. Venu: Hello and welcome to this special discussion on The Wire. We have with us former finance minister Yashwant Sinha, a two-time finance minister. He will talk to us about the state of the economy and the upcoming union budget. This budget will be perhaps the last full budget of the Modi government and is due in a month’s time. So, let’s find out from Mr. Sinha as to what are the challenges before the finance minister, before this government, and indeed the political economic challenges as it were.
Welcome to our show, Yashwant-ji. What is your assessment of, number one, the economy? What do you think are the challenges before the government, given the way GST is going, given the way farmers across northern and western India are rising in revolt which was visible in the Gujarat elections too. What is your sense of what’s going on, what are the challenges and how can this government meet those challenges, given that there’s little time left for 2019 elections?
Yashwant Sinha: Thank you very much. My first thought is this government’s time is up. I mean it is up in the sense that in this tenure up to 2019, there is very little that they can do. They will present the budget on the 1st of February, but as you and I are aware, the budget proposals take time to produce results so the crisis that you have referred to, like the agrarian crisis, unemployment crisis are not crises that will be solved through one budget in quick-time. So, therefore, the time to resolve these major problems is gone, is past.
MKV: So it’s a kind of a missed opportunity, is it?
YS: It is a missed opportunity. I mean when we look back at the five years of the Modi regime, it will be a story of the failure of the economic front. And I’m quiet clear in my mind about the reasons why I’m saying it because every government would have to be judged against the promises that it makes. So whether its agriculture and the rural economy, where they made a lot of promises, whether there is employment, again where they made a lot of promises with regard to targets, my sense is that they have failed miserably in achieving those targets. In fact there has been regression…
MKV: In terms of decline in GDP…?
YS: And missed employment opportunities. You know, you refer to GST, and earlier demonetisation. The impact of demonetisation and GST have not been truly captured in government statistics because you are aware in calculating GDP, the department of statistics, and the CSO, they go by what happens in the organised sector.
MKV: Especially the listed companies and so even the informal sector doesn’t get captured.
YS: Yeah, also informal sector…their performance is calculated on the basis of the performance of the organised sector and the listed companies as you said. So there is a wide divergence between the performance of these two and empirical evidence along with anecdotal evidence would suggest that the MSME sector has been very severely impacted upon.
MKV: Which was seen in Gujarat also…
YS: Yes, which we have seen in Gujarat and the loss is a permanent loss. The farmer has lost as a result of these two and that loss cannot be made up. Nobody is going to compensate him for the loss he incurred as a result of demonetisation or even on account of GST.
MKV: Recently, in this context, you were in Maharashtra, in Akola. You sat in a dharna demanding better remuneration to farmers. You were even arrested along with other activists. Subsequently, if I am not mistaken, some of your demands were conceded by the government?
YS: All the demands actually. I’ll tell you why. There were some local issues, like supply of electricity, payment of dues and disconnecting the electricity connection and all that. So we had about seven or eight demands which had been communicated to the government in writing before I arrived in Akola. And the government did not respond. Then we took a procession to the district magistrate’s office. Then six of the demands were met but two of the demands were not met and therefore we had to court arrest and sit on dharna and all that. Now what were these two demands? It is very important to discuss these two demands.
MKV: These two demands cut across all states?
YS: Absolutely. All other states, entire Maharashtra. One was the issue of MSP. You fix minimum support prices. And you go and tell the farmer, “okay, I’ll buy half of your produce or one third of your produce at MSP, not the entire production”. So the farmer is compelled to sell in the open market at distressed prices because this year the prices of some of these commodities have crashed so he suffers.
MKV: In some places it has crashed by 30%-35%.
YS: Yeah, so he suffers a loss by selling in open market. If open market prices are higher than the MSP, then the farmer will go and sell in the open market. He will not be dependent on NAFED or the state government. So you are defeating the purpose of minimum support price principle by saying I’ll not buy the entire produce. So this was one of the issues. We instead that the government or NAFED should buy the entire produce. The second was that in the meanwhile the farmers had been compelled to sell, because they can’t wait until eternity so our demand was that if the farmer produces credible evidence that he has sold to a trader at lower prices then the government should compensate him for the gap. The gaps should be made up. These were the two things. Now, they did not accept this. Ultimately when the chief minister Devendra Fadnavis spoke to me, I mentioned to him that these are two simple demands and justified demands of the farmers.
MKV: In fact, this should be done in all other states.
YS: This should be done in all other states. He immediately accepted it on the phone and then there was a written agreement between the district magistrate and the farmer’s organisation that this is how it will be done. That was one, the other was, you know the cotton crop. The entire cotton crop, and it was BT cotton, had been affected by the bollworm, which ruins the crop completely and I went to the fields and saw for myself how the crop has been damaged. So there was the question of one, compensation for the farmers for the damage that they have suffered, two, the punishment to the supplier of the seeds. Because the seeds contained the pests. So these two demands have also been met and they have gone to the fields and according to my information they are preparing the panchnama on all the three issues.
MKV: Why should it require a senior BJP leader like you to sit and protest for something which should have been done by this government, which was promised by this government in their 2014 manifesto. Namely that the farmers will get 50% over their costs across the board…
YS: I’m baffled myself. I’m quiet baffled to tell you the truth because I had gone to Akola in October at the invitation of the Shetkari organisation and there they had mentioned these problems and I publicly said that I urge upon NAFED to buy the entire produce and not compel the farmer to sell at distressed prices. But unfortunately three months passed and they didn’t do anything.
MKV: So the agrarian crisis that you are talking about, do you see this spreading like a forest fire? Do you believe that the Gujarat loss for the BJP in Saurashtra was for the reasons you went to Maharashtra and sat in a dharna?
YS: You know, agrarian distress now encompasses the whole country. So you have agitations in Rajasthan, in Madhya Pradesh…. Mandsaur is something we all remember.
MKV: All the farmers’ organisation are coming together.
YS: Yes, Maharashtra I mentioned. There’s Tamil Nadu. There is disquiet all over the place. I’ll tell you what the problem is. The problem is the farmer is not the subject for discussions in the media in Delhi. Therefore, nobody pays any attention to what the farmers are saying or doing.
MKV: What were the PM’s promise to the farmers? Specific promise?
YS: Specific promises were made in the manifesto. Specific promises were made in the PM’s election speeches. For instance, the manifesto says that we shall give 50% profit to the farmer above the cost of his production. This is what the farmers demand.
MKV: What is your assessment? What is the actual return the average farmer is getting today? As opposed to the promise…
YS: The farmer in India is barely surviving.
MKV: So negative returns, in real terms?
MKV: Not even covering inflation?
YS: Yes, it is not. It is not covering inflation. At times it is not even covering the cost of his cultivation. And Vidarbha, where the farmers commit suicide in the largest numbers, that’s where I had gone.
MKV: What about Bihar and Jharkhand, where you come from?
YS: Bihar and Jharkhand were so far different. In Vidarbha, the farmer is generally going for cash crops. So he is going for soya,…
MKV: So they are more vulnerable. Cash crop farmers are much more vulnerable.
YS: Cash crop is more expensive to cultivate.
MKV: The inputs are more expensive.
YS: Yes, the inputs are more expensive and therefore if that crop either is damaged or suffers losses on account of whatever, selling in the market, then he cannot repay the loan and therefore he commits suicide.
MKV: Which happened in Andhra Pradesh as well?
YS: Andhra Pradesh also. In Bihar and Jharkhand, generally farmers are cultivating rice or wheat or vegetables. They are not going for the high value cash crops.
MKV: Therefore, less suicides there?
YS: Less suicides but even in Jharkhand and Bihar we have now cases of farmer suicides and agrarian distress. For the first time. It didn’t happen 10 years ago so the agrarian distress in the last three-four years has intensified. That is the reason of farmer’s discontent all over the country including Gujarat.
MKV: And what can the upcoming budget do about it?
YS: 50% of our people still depend on agriculture today. So the government of India alone will not be able to do anything because agriculture is a state subject and therefore the government has to work with the states. Otherwise, it will not work. I introduced kisan credit card, I could do it because it was easy to implement. But if we want to implement, let’s say, the irrigation schemes, we will have to work with the states. We want to give the farmer appropriate returns, then we will have to work with the state government. So there alerts of areas, extension services. Let me tell you that extension services, Borlaug is forgotten. Nobody remembers what he did in terms of extension. Despite the Krishi district centres, farmer is not getting proper advice.
MKV: What about the soil health card which was claimed to be a big success?
YS: No, no. It’s only in parts. I mean, I live in the rural area of Hazari Bagh and I know the farmer continues to depend on the rain completely, that he continues to do farming as he did 2000 years ago.
MKV: Recently, Niti Aayog put out a report that said if you really want to improve the lot of the farmers, you have to improve irrigation infrastructure and so on. Now agriculture private investment and public investment together, there was a figure of Rs 6,32,000 thousand crore that needs to be invested. So sometimes one gets a feeling that, we only pay lip service to investment in agriculture and really what the budget allocates is a fraction of what is really needed. And if you remember the manifesto, one of the biggest flagship projects of the government, when it came to power was ‘har khet ko pani’ which required actually, if you seriously were to implement it, would require some 30,000 crore a year, five years…
YS: And thereby hangs a tail as they say. You’ll recall that I had introduced the Pradhan Mantri Gram Sadak Yojana in my budget of 1999 I think or 2000. Now, I was convinced after the success of the scheme that that we needed a similar scheme for irrigation. Because most irrigation products will be minor and medium. Not very large. Because large schemes, you will need to build large dams and farmers will lose their fields and today it is not possible. It was possible when Jawaharlal Nehru was the prime minister.
Therefore I insisted, I was the member of the manifesto committee of BJP in 2014, that the Krishi Sichai Yojana should be included in the manifesto. It was there, because I was told that I could write it out and give it to them..
MKV: And har khet ko pani was an extension of that?
YS: Yes, we said krishi sichai yojana, to realise the dream of har khet ko paani. Now this what, the finance minister did very cleverly, was that he merged all these schemes, all the existing schemes…
MKV: So there was no real increase in the allocation?
YS: Yes, and said we were going to spend 40,000-50,000 and 70,000 on irrigation. But in real terms the money was not available on the ground, one. Two, the sichai yojana was not prepared in detail, like we prepared the Gram Sadak Yojana, so money was properly utilised and projects were properly executed. Nothing of that sort is happening, so it is business as usual. While the government and statistics might show, that so many thousands of acres have been covered by fresh irrigation projects, the fact is on the ground nothing has happened.
I regard it as a huge missed opportunity. It is not only a missed opportunity, it is…
MKV: Regression, you said.
YS: Yes, regression and some kind of a betrayal. We made this promise and then we did not deliver on it.
MKV: Do you think, politically this is causing anger among the farmers?
YS: Yes, it is. I could see it for myself. I could see it in Jharkhand, I saw it in Maharashtra and all over. If the farmers in Rajasthan gherao the office of the collector, it does not make breaking news in Delhi but it is very important with regard to where it’s happening.
MKV: The Modi government’s case is that they are doing structural reforms which will show results in the longer run. Now, how do you respond to that? Because the government realises that in the immediate future it hasn’t delivered. Because that is shown by the numbers. All the numbers are going down. Because 2017 is a year, as per global research, three-fourths of economies around the world have shown better GDP growth, lower unemployment, better exports growth and India is an outlier. India is among the one-fourth which have not shown performance on either of these parameters.
YS: You are absolutely right. The most disconcerting figure is that fact that gross capital formation, fixed capital formation has come down from the best of 38% to 27%. Now, how do you sustain an 8% growth rate with this? So, it is an impossible task. I mean, the dreams which are being woven even today and might be displayed in the budget, are all completely misplaced because this has fallen.
MKV: And there is no recovery of private investment?
YS: There is no recovery of private investment. In fact, it’s sliding. We are completing four years of this government. Nothing has happened to the bank NPAs. The bank NPAs, year after year of this government have been going up and today they are Rs 8,00,000-10,00,000 crore depending on which way you compute the figures.
MKV: Here I want to raise a specific point which I want you to respond to. The government has been saying that these NPAs are a legacy from the UPA government and reckless loans were given to crony capitalists. But all those crony capitalists are still around and they are doing pretty well with this government also. But, I saw some of the statistics of the private banks. Now even private bank NPAs have gone over three-times. So how would you respond to this because I’m sure private banks were influenced by sarkar to give loans to various businesses.
YS: Its very clear. See, if the economy is not doing well, then NPAs will mount. The ram bann, the elixir for really improving the situation will have to be a general improvement and upliftment of the economy. You can’t have a dwindling economy and expect that bank loans will be returned and there will be no NPAs. But it was indeed a legacy problem, there is no doubt about it.
MKV: It was not addressed.
YS: It should have been addressed. You can’t, at the end of four years or five years, you can’t stand up and say it was legacy problem.
MKV: And this recapitalisation bonds has also come three and a half years after…
YS: Yes, and nothing is clear about the bonds yet.The details have not yet been worked out. And as and when it comes, I mean it is like securitisation. That the banks will issue bonds and the government guarantee and this that. But the point is they will take time to perform, to produce any results. And the most important thing is demand. I mean, why should the private sector invest if the existing capacity is not being fully utilised.
MKV: They are working at 70% capacity at the moment which has not changed for thread a half years.
YS: Yeah. There, the most important thing to do is encourage demand of both investment goods and consumption goods in the economy. That should have been the first step of this government which they have failed to perform. I mean, it seems that when they came in power they did not hit the ground running and they had no concept of how things could be improved.
MKV: And they had the benefit of declining oil prices, they got enough fiscal space. Do you feel that the fiscal space is being lost because only day before, the finance ministry announced that they are going to borrow Rs 50,000 crore more and part of the reason is the way GST implemented. There is a huge shortfall in GST collections. Where do you think are we headed? I think the last budget, do you think will also be made in the dark, without knowing the numbers?
YS: I have serious doubts about the fiscal deficit targets being met this year or next year. For the simple reason that from when the huge reduction from 28% to 12% was done for around 200 items for GST which were at 28%, the finance minister did not tell us what is going to be the loss in the revenue. I mean this was because the entire GST rate fixation was done on basis of one principle and that was revenue neutrality.
Now, I came across a very interesting statement in the media from West Bengal finance minister, Amit Mitra. He said the loss to the states will be Rs 30,000 crore and the loss to the Centre as a result to these reductions will be Rs 60,000 crore. So together it will be a loss of Rs 90,000 crore and all this loss will be on Government of India’s account because the government is committed to making up to the revenue loss of the states so Rs 90,000 crore is almost 1% of the GDP. And we are seeing it now in figures, month after month, its come down to Rs 80-82,000 crore.
MKV: So you are suggesting that the actual borrowing could be much more in the course of the next six months?
YS: We have already exhausted the fiscal space. So the government will have to borrow more. The fiscal deficit target will not be maintained and I’ve seen newspaper reports and editorials saying how does it matter if its breached by a few basis points. This is not the issue. The issue is it reflects on the credibility of the government. You cannot tell the rating agencies that we are realistic on fiscal discipline and then break fiscal discipline yourself. That is one. The second you raised the issue of petroleum crude prices. This was a huge, huge bonanza for this government. Because at $40 or so, they were saving lakhs of crores of rupees in every year. How has that money been used? They had the kind of a space that no government in recent past has had to use this fiscal space which was created as a result of declining oil prices.
MKV: Sure. They never brought down the retail oil prices or the domestic oil prices which stayed at the same level when the oil prices were $115 a barrel.
YS: It was not passed on to the consumers. They did not come out with new infrastructure and new welfare projects in the budget. Nothing, no extraordinary consequence. So expenditure management is one area where we have to unfortunately, serious fault this government. There has been absolutely no sense of discipline as far as expenditure management is concerned.
MKV: You didn’t answer my other question about this government’s claim that some structural reforms will show result, may be two years down the line. Is it just postponing the problem?
YS: No, no. If demonetisation is claimed to be structural reform then I’ll say the laws under which you are proceeding today, these laws have been in existence for many many years. In fact, the money laundering bill was implemented by me in parliament and passed. It was there, the income tax laws were there.So you had the laws to go after black money. You didn’t have to really use a hammer to swat a fly. This is what demonetisation has done. And as I said, a farmer told me in Akola: “I was going to see my orange orchard for three lakhs. After demonetisation, I only realised one and a half lakhs”. So he lost one and a half lakhs. Will somebody make up that loss? No.
This is a permanent loss that he has suffered. So loss is something we all know about, the gain is something which is in the distant future and as I said we did not need demonetisation to go after black money.
MKV: And I think the only thing the government now argues, to which you have responded in the past also, it said that lot of money has come into the bank by people and some tax notices have been sent to some nine or ten lakh bank account holders.
YS: 18 lakhs.
MKV: Yeah, initially 18 but now they’ve zeroed down to nine or ten lakh account holders who have deposits of Rs 3,00,000 crore. But then others managed to convince the government through their communication that their deposits were money that tax had been paid on. But in the rest, the government says that income tax department will investigate and find out. Do you think the income tax will be able to investigate and find out? How long will this process take? What is your sense? After all, direct tax collection is also below budgeted taxes as per data so far.
YS: You see, the income tax will proceed, the income tax is a law. And they proceed according to the procedure laid down so ultimately the session officer will make an assessment. Then there is the appellate tribunal if you are not satisfied with the assessing officers decision. You go to the next level. From the appellate tribunal you go to high court, from the high court you go to the Supreme Court. Given the delays in our judicial system, it’s anybody’s guess how much time it is going to take for these 9-10 lakh cases.
It’s a joke, I’m telling you it’s a joke. I saw a statement from a ministry of state for finance in parliament recently saying that a 25,000 crore worth of rupees of undisclosed income has been discovered after demonetisation but whether it undisclosed or not undisclosed, these cases are not decided. And I think it’s absolutely wrong to claim on the basis of undecided cases that we’ve discovered so much black money.
MKV: What is your take on the issue that banks are finding it difficult to lend because 40-50 large corporate groups owe some Rs 10 lakh crore rupees? Out of this, three or four groups themselves owe Rs 3 lakh crore to Rs 4 lakh crore. Is this NPA problem close to being resolved?
YS: No… it being resolved in the sense, under the bankruptcy code companies are sought to be declared bankrupt and they are supposed to be sold. Their assets are supposed to be sold. Now, you are aware that they are going to the Supreme Court, there is a Supreme Court intervention. So all kinds of legal complications have a reason as a result of the Reserve Bank declaring a company bankrupt.
MKV: And in some cases where they have resolved, banks have only recovered only 25% of the total liabilities.
YS: Yeah, because the assets are not there.
MKV: Yeah, they are writing off nearly 70-75%…
YS: Absolutely. And not counting on the assets or the bad loans which have been transferred to the asset reconstruction companies by the banks themselves. So you now when an audit is done lf all the losses which the banks have incurred as a result of these bad loans, it is going to be a humongous figure.
MKV: Essentially you are suggesting that this is also a kind of missed opportunity and the government cannot now claim or put the blame on the previous government. They have had enough time to resolve all these issues.
YS: Absolutely. Every government inherits some bad legacies and some good legacies. I mean, you can’t say in a democracy that it will be a clean slate. No, it’s never a clean state. you inherit a mixed picture from the previous government and you are supposed to deal with the issues and proceed further. There is no point in crying over, lets say, spilled milk for five years down the line and say these were legacy issues.
MKV: Finally tell me, politically where are we headed? Now, you have said this government after the next budget, this will be the Modi government’s last full budget. They have had opportunities galore starting from the way oil prices came down and they had so much fiscal space, so much current account space. Now all this economic distress as you said or regression or missed opportunity, whatever way you put it. In what way will it manifest politically?
YS: As the mandate of 2014 is concerned, I have no doubt in my mind that that mandate as been wasted. And the time that is left, its very difficult to recover the lost ground, thats point number one.
Point number two is that, even the legacy issues have not been solved, you know, they continue to stay and in fact they have become worse. And the net result of all this is great agrarian distress in the rural areas as I have said earlier, which are not in the media’s attention, in the hinterland. And there is huge discontent among the youth because they are not getting job opportunities.
MKV: These are politically potent issues.
YS: As far as the economy is concerned, what are the issues which get reflected in the electoral terms? One is price rise. Now on that they have been lucky because petroleum crude prices have been moderate and so rising prices of tomatoes and vegetables has not been a major issue. But, unemployment and agrarian distress, the disappointment caused to the small and medium enterprises, to the middle class.
Large, large number of small businessmen, go and talk to them. They are in such distress. So agrarian distress and as far as the MSME sector is concerned, distress of the youth because there is no employment opportunity, these are issues which will reflect when electoral considerations are made by the people.
MKV: Politically speaking, if these are indeed the issues which will challenge the BJP politically as they approach 2019, there is also a narrative that as had happened in Gujarat, there is one interpretation that Narendra Modi and his advisors may shift attention to some other issues, non-economic issues as it were. Some dividing issues, may use Hindu consolidation as a project. Do you think these things will work? What’s your sense?
YS: It will be extremely unfortunate if that is done on a nationwide scale.
MKV: We saw a central minister saying that – “we are here to change the Constitution” – all this is leading upto where, according to you?
YS: This is leading to fissures in our social fabric, there is no doubt about it. But they work only upto a point. On a nationwide scale when you have general elections for the Lok Sabha, I don’t think these issues will work to the extent to which they’ve worked in a state.
MKV: They may work locally but on a national election…
YS: The bread and butter issues will be dominating over the other divisive issues.
MKV: Thank you so much Yashwant Sinha ji for talking to us. That’s all we have for now. Thanks for watching.