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Trust between Centre and states intact in GST Council: FM Sitharaman

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In an exclusive interview with BS, Sitharaman said the first quarter lethargy is something which the Centre and the states will have to work on.

Nirmala Sitharaman

In an exclusive interview with Shrimi Choudhary and Arup Roychoudhury, Union Finance Minister Nirmala Sitharaman said the Centre had kept the promises made to states and hence there was trust at the recently-held  Council meeting. On broader economic issues, Sitharaman said while there were still uncertainties on the expenditure side of things, she was confident of a healthy tax revenue buoyancy in FY23. The FM said the high level of government debt-to-GDP ratio should not be a concern against the backdrop of two years of the Covid-19 pandemic. Edited excerpts from the interview:

It’s a difficult time to be a finance minister. The world is recovering from a pandemic, the Russia-Ukraine war has stretched global supply chains, leading to high energy and food prices. Rising inflation and interest rates have led to a fall in markets, bringing economic distress globally. How do you look at it?

It’s certainly an extraordinary time. It’s also been abnormal to the extent that we had to think of giving almost five ‘mini Budgets’ during 2020. That wasn’t the end of the story. The Russia-Ukraine war caused a major disruption in supply chains, including a surge in metal prices, which are now cooling down a bit. But prices of all essential items were going up.

It’s definitely an unusual combination because the West is saying they have not seen such an inflation for 40 years in some countries. And, with inflation at that level, they are also not able to come up with solutions; they are going to have a near-term solution for themselves. These were the very economies that printed money during Covid, and some of them were ready to splurge.

And I would say splurge (consciously), because they wanted to convince themselves and also convince certain vocal constituencies that money had to be spent; money had to be given. If the intentions were good, the consequences are now for all to see.

Those very economies also showed an extraordinary willingness to spend and thought that would bring relief from the pandemic.

What was India’s model during the pandemic?

We had our way of handling the pandemic and that was very much tailored to the uniqueness of the . We have a large number of MSMEs, spread across several sectors — both traditional and technology-advanced machine-using industries. Our solutions had to be very much variegated (one kind of solution for one area). We have taken a variegated approach to each one of those sectors according to their requirement, one at a time while coming out of the pandemic-induced lockdown. We took an approach which was a bit labour-intensive from the policymaking side. We did so to reach all sections.

If that was one big challenge, this complexity, which is coming out of external factors now, even as we are coming out of the pandemic, is posing a challenge, which is not in our hands to even calibrate as we are handling it.

The external factors, all of which require understanding and responding like the way we have come up with in terms of taxing those exorbitant windfall gains that some of them are having. Also, to be sure, our inflation is nowhere near what western countries experience. But even this will be burdensome on our people, because you have people with very low income who can't afford to have that kind of a burden on themselves. So we are addressing inflation with a sense of urgency and sense of priority. Even if it is well within 7-7.9 per cent or well within 8 per cent or 9 per cent, it is not any sacred number, whereas 6 per cent is a sacred number for me. We still want to bring it down to somewhere close to 6 or below 6 per cent.

But what are the ways of doing this? India has had, between two crop cycles, the problem of food inflation, particularly of perishables. Add to that problems of petrol and diesel prices because of global pricing, we've definitely been affected every time, over several decades, because of these factors. But now we also have additional factors of input costs, not so much the supply itself. It’s available, but at a very high cost. Our understanding of inflation and its causes now, as well as how we handle it, is very proactive.

ALSO READ: Capex is the route to economic revival, says FM Nirmala Sitharaman

RBI’s financial stability report stated that the recovery is gradual, but uneven and that a durable commencement of the capex cycle remains elusive. What is your view on that?

I'm not commenting on their observation of the recovery being gradual but uneven. That’s their domain. I read it and take it into my scheme of things. But on this point of capital expenditure not happening or insufficiently happening, or uneven or elusive, we are in the first quarter and first quarters are notorious in that many things don't happen. The first quarter lethargy is something which the Centre and the states will have to work on.

One major thing that I want to highlight here is that, according to the earlier perspective, once money had gone off to states, it meant expenditure was taking place. Now, with us moving to a single nodal account system, where money goes, when exactly it is needed, and how it is spent, all of that is being monitored.

How was the response from states in April-June on the Rs 1-trillion capex loans?

Our point was that states could come up with any project — greenfield or brownfield, or pending projects which are incomplete or so on. We said you use it for anything, but it has to be for capex. By the time the finance ministry gave the guidelines, it was late April, and by the time states sent their projects for evaluation, it was early May. But now I am confident that we can distribute that amount by end-September. Even during the pandemic, because we adopted this method of spending capital assets, we spent through capital expenditure to ensure economic revival. And states really showed that absorption, which you would have never otherwise imagined.

What are your plans for banks and insurance companies? You have been speaking about it since the 2021 Budget.

We are going on with the plans of bank . We’ll keep going. If you remember, by the time we got ready with the LIC IPO, the market had started turning. But we stuck to our decision. I would compare a  plan to the Jagannatha Yatra. So much effort goes in searching for a tree, then it is chopped, then it is brought with fanfare, and there are specific days when the wheel is made, and each year there are different dates for when the chariot gets ready. In all this, if we say that we have not had enough crowd, so we cannot do the Yatra, can the process be stopped?

Do you have a muhurat in mind for bank 

We'll keep going. The preparation for the Rath keeps happening. When the Rath is ready, we will have to go. The Banking Regulation Act amendments should come soon.

The banks that you are looking to privatise, will you exit them completely?

The ones which I can privatise, I can get out of fully, because there will be some in this sector which will remain PSBs. But, while I want to let go, whether I would want to retain some minimal stake and let go of a majority strategically — all that is part of a decision-making process.

States are expecting a road map from the Centre on the compensation issue, not necessarily to extend the period but some measures to address the revenue shortfall. What’s your take?

During the  Council meeting, two days went in focusing on the Group of Ministers’ reports. Compare that with the days when the Centre and states were worried about how it would be seen through. At that time, compensation seemed to be the only agenda of interest. Now, we have done two days of work picking up on complex findings and recommendations by the panels without a sense of cynicism or negativity. The next day, one or two states raised the compensation matter which we agreed to take up. A few others joined in and that is how the discussion on compensation began and ended like it did….

Any road map?

I've heard what they had to say. Technically speaking, the compensation was for five years to ensure a compound annual growth rate of 14 per cent in revenues under the  regime. And I am conscious of Covid-affected revenue growth. So, those two years cannot be taken to measure any kind of growth percentage, but before that also, and after that, when revival is happening well — about 8 to 9 per cent is the most the best-performing state has reached.

Do we see any rate rejig exercise this year, keeping in mind the current circumstances?

I haven’t even reached that stage yet….

How has your experience as the  chairman been?

I’m very humbled by this experience. It’s a wealth of experience. And the way in which each one feels focused and committed is amazing. The GST Council, despite all the undermining that many parties do, and in spite of their members sitting there, is such a fantastic institution.

The GST Council meeting, the way it went, shows that it is moving in the right direction. Was there any ground work?

We constantly keep talking to them about the agenda – talking to the officers, calling them over. Even if one state has apprehensions, we call them and have their views before we actually put it on the Council meeting agenda itself, and so on. This particular meeting went the way it did because trust had not been let down. We’ve not failed on the promises.

Moving away from GST, what’s your view on the NSE matter?

We are conscious that it is a well-built institution, it has a role to play in the . The NSE and BSE have made big contributions to the stock market. So, nobody is interested in damaging them. But equally, it cannot be that buccaneers can just go there, do what they want and get away, hurting the confidence in the market. When this happened, a lot of questions remained unanswered. And that's what the CBI is going into. And that's what the regulator Sebi is also looking at. It was felt that sufficient action hadn't been taken by Sebi at the time it happened. Probably some token action was taken, but it didn't address all the issues related to the scam. And there are layers which were not tested by Sebi at that time itself. Those layers cannot be left without being inquired into.

Economists say there is a problem with demand. And there is not enough done to revive demand deficiencies. You think demand will be taken care of through your capex route?

That’s the route we have chosen. We are seeing the results, such as composite PMI, it is going up month-on-month except in one month. The route we've chosen to stick to is expenditure. It may take some time, but we are seeing the results.

How comfortable is the fiscal situation given the external factors?

It looks comfortable but the challenges are before us. We don't know where the fertiliser prices will end up. We don't know how long crude oil prices are going to be at elevated levels, even if I purchase more from Russia. I still will have to think about the other costs involved. So, there are uncertainties for which I still have to keep myself ready.

How optimistic are you on nominal GDP and revenue buoyancy?

I am quite optimistic. Our revenue buoyancy is at 1.5 per cent now. We have seen a 30 per cent increase in tax collections in FY22; the indirect tax collection in the first two months of FY23 is up 36 per cent. I hope to maintain that.

What would be your message to those states that keep arguing that the Centre uses a variety of instruments to generate revenues, but not in a shareable format. There will be criticism tomorrow that even the windfall tax is in the form of a cess…

Even for oil-marketing companies – who bears the burden when they go through bad times? The Centre or states? That is my simple and straight answer. They try to spread a misunderstanding every time that we don’t share resources. When things go wrong, I have to import fertiliser and also take the burden of OMCs. Sensationalising such things is very quick and easy...

Ratings agencies and the RBI have raised concerns of general government debt-to-GDP ratio. What would you say to that?

I think, to be fair to states and to the Centre, we should not treat it with the same yardstick as during normal times. India, particularly, had a very severe second wave and the economy was impacted. The economy is now reviving. In such a situation, if you try to bring the debt down, there can be a negative impact on growth prospects. So, while the debt-to-GDP ratio is a very powerful indicator, one has to be conscious of the reality.

The central bank digital currency is in the works. Given the complexities, where are we on that?

A lot of discussions are taking place on the matter. The central bank has, from the beginning, expressed a lot of concern about digital currencies. And, it is not just India's central bank, but also the central banks all over the world. That is one side. The other is the fintech side of things, where we have repeatedly said we want the blockchain technology encouraged. It has its benefits. But we will have to take a call on whether we want to allow its use for creating private currencies.

A lot of the credit for GST goes to how your predecessor – the late Arun Jaitley - brought together competing interests of various political parties, centre and states. How do you view carrying his legacy forward?

I never dreamed I'll be able to fill those shoes, they are too big to fill. One of the things that the Prime Minister decided was to name the National Institute of Financial Management after him. And it was decided to hold an annual Arun Jaitley Memorial Lecture. It could not happen in 2020 and 2021 because of the pandemic. But this year we will be holding it.

Apart from the lecture (to be delivered by former Singapore Deputy Prime Minister Tharman Shanmugaratnam), we also wanted to hold a conclave of globally renowned economists, bring them in, and have them sitting under Chatham House rules and discuss the economy. And we wanted to make that a calendar event for the Ministry of Finance.

You have faced a pandemic and now global uncertainty due to the war in Europe. Mr Jaitley faced conditions which were much more benign. Do you sometimes wish you had his luck?

New York governor: State to limit where guns can be carried

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Gov. Kathy Hochul said lawmakers have agreed on the broad strokes of a gun control bill that the Democratic-led Legislature is poised to pass Thursday.Hochul Prepares New Legislation in Response to New York Gun Law Ruling -  The New York Times

New York will ban people from carrying firearms into many places of business unless the owners put up a sign saying guns are welcome, Gov. Kathy Hochul announced on Wednesday, describing a deal with state legislative leaders that is being finalized.

Hochul said lawmakers have agreed on the broad strokes of a gun control bill that the Democratic-led Legislature is poised to pass Thursday.

The legislation hurriedly written after the U.S. Supreme Court struck down the state’s handgun licensing law will include provisions that make it harder to apply for a permit to carry a gun outside the home and create more rules around firearm storage in homes and vehicles.

Hochul and the fellow Democrats who control the Legislature also plan on creating a comprehensive list of sensitive places where the average citizen will be banned entirely from carrying firearms, including government buildings, hospitals, schools and public transit.

But Hohcul said she also wanted to protect the rights of property owners, including the proprietors of bars and restaurants, who decide they don’t want firearms on the premises.

"Businesses who want guns would have to put up a sign reading: Concealed weapons welcome here," or words to that effect, Hochul said. Otherwise the presumption will be in the state of New York that they are not.

The push to pass new restrictions follows the Supreme Court’s decision striking down New York’s century-old licensing law, which required people to show an unusual threat to their safety to carry a handgun outside their home.

The state’s handgun permitting system is still in effect for now, but it is likely to lead to many more New Yorkers getting permits that allow them to carry a concealed handgun for personal defense.

"We are going to be facing a wave of concealed weapons in our parks, our subways, gathering places," Hochul said.

Hochul didn’t release the text of the legislation Wednesday. She said she’s working with lawmakers to hammer out specifics, including on her proposal to bar people with a history of dangerous behavior from getting permits.

She said her staff has been working on the legislation that will stand up in court. The Supreme Court ruling said states could ban firearms in particular locations but warned that it would likely be unconstitutional to simply ban guns in all densely populated areas.

"I will go right up to the line, I will not cross the line, but I know we will do whatever we can to protect New Yorkers," Hochul said.

Lendingkart raises Rs 75 crores in debt

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The fintech startup in the working capital space has raised Rs 25 crores in debt from GMO LLC and Rs 50 crores from Triodos Investment Management via NCDsLendingkart raises Rs 75 crores in debt

Fintech company, Lendingkart on July 2 raised a debt funding of Rs 75 crore. The company will use the new funds to originate MSME loans across all states, the company said in a press release.

The fintech startup in the working capital space has raised Rs 25 crores in debt from GMO LLC and Rs 50 crores from Triodos Investment Management via NCDs.

“The newly infused funds will help us in increasing our reach and service more pin codes across the country. It is our constant endeavor to empower the MSMEs and small businesses and we will continue to bridge the financial gaps for small businesses,” said Harshvardhan Lunia, CEO & Founder at Lendingkart.

Founded in 2014 by Lunia, Lendingkart has offices in Ahmedabad, Bengaluru, Mumbai, Gurugram, and has service reach across India. The group is financed by reputed international investors like Fullerton Financial Holding (FFH) (100% subsidiary of Singapore Sovereign Fund Temasek Holdings), Bertelsmann, Mayfield India, Saama Capital, Sistema Asia, India Quotient, and others and has raised around Rs 1050 Crores of equity till date.

The Company has developed technology tools based on big data analysis and machine learning algorithms which facilitate lenders to evaluate borrower's creditworthiness and provide other related services.

GMO LLC provides various payment and financial related solutions and platforms to companies to promote cashless and DX and built payment infrastructure.

Triodos Investment Management, a wholly owned subsidiary of Triodos Bank, invests to generate social and environmental impact alongside a healthy financial return.

Mauritius-based PEs not to pay additional capital gains tax, says MRA

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IVCA had said the move to treat all income from Indian AIFs as dividends would wreak havoc on funds with a presence in Mauritius and investments in Indiatax

The  Revenue Authority (MRA) has clarified that foreign entities based in the island country need not pay additional capital gains tax following representations from private equity firms which have invested in India.

The MRA said in respect to distributions made by foreign fiscally transparent entities to Mauritian residents, it wishes to clarify that income, which is distributed by a foreign fiscally transparent entity, retain its initial character in .

"As such, any capital gains eventually distributed by a foreign fiscally transparent entity to a Mauritian resident shall be treated as capital gains and thus, are not subject to income tax in Mauritius," it said in a late evening clarification.

The Indian Venture and Alternate Capital Association (IVCA) had said yesterday that the MRA ruling to tax capital gains from India would fundamentally alter the character of all income arising from Indian alternative investment funds (AIFs) and lead to increased litigation and uncertainty for India-bound investments.

IVCA had said the move to treat all income from Indian AIFs as dividends and not as constituent income flows (dividend, interest or capital gains), will wreak havoc on funds with a presence in  and investments in India. The MRA clarification will help the Mauritius based PEs to invest in India.

Capex is the route to economic revival, says FM Nirmala Sitharaman

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In an exclusive interview with BS, Sitharaman says spend on capital assets may work better than sector-specific fiscal steps

Nirmala Sitharaman

The government would depend on its public  programme to revive demand in the economy and might not go for sector-specific fiscal measures, Finance Minister Nirmala Sitharaman told Business Standard on Friday.

In a wide-ranging interview, Sitharaman said the Centre would finalise the privatisation of a public sector bank soon. Also, the fiscal deficit and growth situation were very comfortable this year in spite of continuing external headwinds, she added.

“The route we have chosen and the one we are sticking with is . Even during the pandemic, we adopted this method of spend on capital assets to ensure economic revival. And states really showed that they had the absorptive capacity,” Sitharaman said.

The Centre’s  outlay is estimated at Rs 7.5 trillion in FY23. Of that, Rs 1 trillion will go to states as a long-term, interest-free loan for their  needs, according to the FM.

The entire Rs 1 trillion could be given to states in the July-September quarter itself. “Many states are ready with their plans to spend the capex on greenfield or brownfield projects. The rules for distributing the Rs 1 trillion loan were framed by late April and states brought their projects for evaluation in May.”

Sitharaman said she was confident that the amount (Rs 1 trillion) would be picked up by states before the end of the second quarter.

Speaking on the biggest challenge for fiscal and monetary policymakers — inflation — Sitharaman said the 6 per cent upper limit of the Monetary Policy Committee’s (MPC’s) medium-term inflation target was a ‘sacred’ number.

“The challenges are all external. Our inflation is nowhere near what countries have experienced. But even this will be burdensome on our people, because we have people with very low income who can’t afford to have that kind of burden on themselves,” she said.

Headline retail inflation for May 2022 cooled down from the 8-year high of the previous month to settle at 7.04 per cent. It was still a fifth straight month of headline retail inflation staying above the MPC’s medium-term target of 4 (+/-2) per cent. The Reserve Bank of India expects inflation to average above the 6 per cent mark till the October-December quarter.

Sitharaman said the economy recovered strongly from the three waves of the Covid-19 pandemic because the Centre took a “variegated approach’’ for different sectors rather than opting for “one size fits all” measures.

“We had our way of handling the pandemic and that was very much tailored to the uniqueness of the Indian economy. In that, you have a large number of medium and small-scale industries spread across so many sectors. You had to have one kind of solution for one area,” she said.

ALSO READ: Trust between Centre and states intact in GST Council: FM Sitharaman

The government is going on with its plans of bank privatisation, the FM pointed out. “We’ll keep going. The plans are almost ready and we will bring amendments to the Banking Regulation Act soon.” Referring to banking as a “strategic sector”, she said the Centre would continue owning some banks. However, in the banks which the government decides to exit, it could do so completely. “I can exit some banks completely. But whether we do that or we keep some stake is all part of the decision-making process,” she said.

While there has been no official confirmation from the government, Central Bank of India and Indian Overseas Bank are said to be the candidates for privatisation.

On extension of compensation to states after the recent GST Council meeting, the FM said the trust between the Centre and states was intact because the Centre had not failed on its promises.

“I have heard the states. The two Covid-hit years cannot be taken to measure any kind of revenue growth percentage. And after that also, when revival is taking place, about 8-9 per cent is the most that the best-performing states have reached,” Sitharaman said.

On the National Stock Exchange scam, involving its former chief executive officer Chitra Ramakrishna, the finance minister said it was felt that the Securities and Exchange Board of India (Sebi) did not take sufficient action.

“Nobody is interested in damaging NSE as it has a huge contribution to make in the financial markets. But equally, it cannot be that you do things which can hurt the confidence of the markets,” she said.

“That’s what the CBI is going into. And that’s what the regulator Sebi is also looking at, because what was felt that sufficient action hadn’t been taken by Sebi at the time it happened. Probably some token action was taken, but it didn’t address all the issues related to this scam.”

Fuel Prices on July 2: Check petrol, diesel rates in Delhi, Mumbai, and other cities

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Fuels prices remain unchanged on July 2. In Delhi, a litre of petrol costs Rs 96.72 and diesel Rs 89.62Fuel Prices on June 2: Check petrol, diesel rates in Mumbai, Delhi and other  cities

Petrol and diesel prices will remain steady on July 2, the latest price notification issued by fuel retailers shows, with prices staying unchanged for more than a month after the government on May 21 cut the excise duty on petrol by Rs 8 a litre and on diesel Rs 6 a litre.

The duty cut brought down the petrol price in Delhi by Rs 9.5 and Rs 7 for diesel. Petrol in Delhi costs Rs 96.72 and diesel Rs 89.62 a litre.

In Mumbai, petrol is selling at Rs 111.35 and diesel at Rs 97.28. Petrol and diesel are priced at Rs 102.63 and Rs 94.24 in Chennai, while in Kolkata, petrol is at Rs 106.03 and diesel at Rs 92.76.

Oil marketing companies are incurring a loss of Rs 13.08 a litre on petrol and Rs 24.09 on diesel even as they pass on the excise duty cut to consumers in the country. India meets 80 percent of its fuel needs through imports.

Globally, oil prices gained more than two percent on July 1 as supply outages in Libya and expected shutdowns in Norway outweighed expectations that an economic slowdown could dent demand.

Benchmark Brent crude futures settled at $111.63 a barrel, rising $2.60, or 2.4 percent. West Texas Intermediate crude (WTI) settled at $108.43 a barrel, gaining $2.67, or 2.5 percent.

WTI and Brent traded at about 70 percent and 77 percent, respectively, of the previous session's volumes ahead of the Fourth of July holiday in the US.

For the week, Brent lost 1.3 percent, while WTI rose 0.8 percent. For June, both benchmarks had ended the month lower for the first time since November.

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