Nirmala Sitharaman | Outlook Business
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The Taskmaster
Will an economics background and intricate understanding of commerce and trade help Nirmala Sitharaman steer the economy through its darkest hour?

V Keshavdev

Call it strange, but Nirmala Sitharaman’s stints across different ministries in the Modi government since 2014 have never been easy.

As the Union minister of commerce and industry she had a tough time negotiating trade concessions at the World Trade Organisation (WTO). In her second stint as the defence minister, she had to counter allegations of corruption in the Rafale deal by a belligerent Congress president Rahul Gandhi besides the Doklam stand-off. And on Day One as the country’s finance minister, came the announcement of GDP growth falling to a 20-quarter-low of 5.8% even as joblessness reached a new peak of 6.1%.

But then the 59-year-old is cut from a different cloth. Her calm demeanour belies a fierce determination. She doesn’t let any situation get the better of her, at any cost. In fact, in an interview with India Today in 2012, Sitharaman revealed the best advice she ever got was: “Never go to any extreme… don’t be too suppliant because you will lose your dignity. Nor be too overconfident and aggressive, or you will eventually lose your ground. Remain balanced. That way you can never fall too far.”

An ardent devotee of Lord Krishna, Sitharaman is also of the firm belief that, if not for the cosmic grace, an ordinary girl from a middle-class family in Madurai wouldn’t have come this far.

Though her family had no political connections, Sitharaman did show a streak of her organisational skills and political acumen while pursuing her Masters in Economics from JNU (Jawaharlal Nehru University). She was part of a students’ union called the ‘Free Thinkers’. Anand Kumar, National convenor of Swaraj Abhiyan, a breakaway faction of the Aam Aadmi Party, had founded this group.

Recalling his days as her batchmate at JNU, Nalini Ranjan Mohanty, director, Jagran Institute of Management & Mass Communication, wrote in The Quint, that for the students’ union elections in 1982, Sitharaman put in strenuous effort — from writing and pasting posters, to distributing leaflets and canvassing among students. ‘Free Thinkers’ was a union that opposed the ideological moorings of the communists. During the campaigning, Sitharaman showed her ability to put across an argument forcefully. Mohanty recalls her addressing small groups of students by posing the question: “…would they like to mortgage their independence of thinking for an elusive social and economic justice that remained a chimera?”

The rebellious streak was also evident when she took part in the gherao of the then vice chairman over the padlocking of a student’s room. That incident led to 160 students being arrested and 67 students being sent to Tihar Jail. Many years later, recalling this, Sitharaman said that while protests were a part of democracy, she was disappointed to hear factions in JNU observing protests against the hanging of Afzal Guru, a terrorist held guilty of plotting an attack on the Parliament in 2001. “As an alumna, I feel bad… This is a campus where we protested the smallest injustice and went to jail. Never has it become a party to forces that were speaking against the country. You may criticise Indira Gandhi or even the present prime minister, but to talk against the integrity of the country? That is not the JNUSU (Jawaharlal Nehru University Students Union) I want to remember,” Sitharaman said in an interview in 2016.

It was during her stint at JNU that she met her husband Prabhakar Parakala, whose family was involved in politics. Her father-in-law, Seshavataram Parakala, was affiliated to the Congress and an associate of the late PV Narasimha Rao. Incidentally, after her marriage, Sitharaman had to leave her PhD dissertation midway after her husband got a PhD scholarship at the London School of Economics (LSE).

Interestingly, though Sitharaman couldn’t complete her PhD thesis — India-Europe textile trade in the General Agreement in Tariffs and Trade (GATT) framework — as the commerce and industry minister, she showed what a tough negotiator she was.

The Making Of A Leader

In the UK, Sitharaman’s first job was as a salesgirl at the Sainsbury-owned Habitat, a home-décor store on Oxford Street. There she earned her first incentive — a bottle of Moët & Chandon champagne — for achieving record Christmas sales at the store. She later joined the research division of PricewaterhouseCoopers (PwC), followed by a brief stint at BBC World Service. She then moved back to India in 1991.

Keen to get herself involved in public life, she laid the foundation of a Pranava school in Hyderabad. But it was a chance meeting with Sushma Swaraj that saw her gravitate towards the Bharatiya Janata Party (BJP). 

She found a place in the government body National Commission for Women (NCW) under the National Democratic Alliance (NDA), headed by the late Atal Bihari Vajpayee. She was eased out of the Commission when the Congress came back to power and, years later, when the BJP adopted the 33% reservation for women throughout its party structure, she was invited to join its National Executive Council. In 2010, she moved to Delhi after being appointed as one of the six national spokespersons of the party, which was then headed by Nitin Gadkari.

Mohanty mentions in his piece how he was shocked to know that the free-willed, rational-thinking girl from JNU opposed to the communist’s ideological rigidity, went on to join an ideologically conservative party such as the BJP, albeit with rightist persuasion. He recalls her replying that she wanted to do something for the society and the country, and the party platform provided her the opportunity to do that.

Sitharaman got her first break in 2014, when she was made the minister of state (independent charge) for commerce & industry, as well as the minister of state (MoS) for finance and corporate affairs. Though she did not contest the Lok Sabha elections in 2019, she has been a Rajya Sabha member from Karnataka since 2016.

Staying Her Ground

As the commerce and industry minister, her first major overseas trip was to the G20 Trade Ministers’ Meet in Sydney in 2014, where Sitharaman showed that she was no rookie at the game. The US and the European Union warned that non-adoption of the Trade Facilitation Agreement (TFA) by July 31 that year, would derail global trade reforms. But she made it clear that the agreement arrived at the Bali meeting in December could not be sacrificed.

The Bali Ministerial Declaration in December 2013 had adopted 10 issues relating to the Doha Development Agenda, which had been in the making in the WTO since 2001. What irked India was a clause in the TFA that capped farm subsidies at 10% of the value of agricultural production. It allowed the WTO members to challenge any country that breached the cap and impose trade sanctions. The expectation was that the Modi government would accept the new rules, but that was not so. The TFA calculates the subsidy cap based on the 1986-88 food prices, while India has been seeking a revision in the base year, citing inflation. In fact, while a summation of proceedings was being made at the closing of the Sydney meeting, Sitharaman interrupted. She wanted India’s objection to the trade facilitation pact, and the valuation issues of agricultural products and public stockholding, to be placed on record.

Back in India, she made a statement on the floor of Lok Sabha in August 2014, stating, “Today, developing countries are fighting to keep development-centric negotiations as against the single-minded mercantilist focus of most of the rich, developed world on market-access issues. India took the stand that till there is an assurance of commitment to find a permanent solution on public stockholding and all other Bali deliverables, including those for the least developed countries, it would be difficult to join the consensus.”

Her ability to emphatically put across India’s point at different forums on the global stage was once again evident at the 71st Commission Session of the United Nations Economic and Social Commission for Asia and the Pacific in Bangkok in May 2015. She pointed out that while India welcomed the UN General Assembly’s Open Working Group (OWG) report on integrating sustainable development goals into the Post-2015 Development Agenda, the proposal of the OWG represents a delicately balanced political compromise between member-states. “It would be important to maintain an element of policy flexibility. A one-size-fits-all approach will not be beneficial. Different starting points of different countries, and their specific national circumstances must be the basis for crafting national-level targets,” she emphasised.

As the finance minister, she will present her first budget on July 5. It will be interesting to see if she will try to pander to the suit-boot class. But taking a cue from her speech at the 2017 National Conference on Economics of Competition Law, it is evident that she won’t be going overboard to woo the private sector.

She mentioned at the conference that India was not moving away from a completely public, centrally-commanded economy, to a totally private one. Pointing out that the routes China and Russia took led to oligarchy, she said, “… it doesn’t fare well for me as a point of comparison at all. Because our economy is clearly moving from one stage to another, through a very cautious and well-planned middle path... to compare India with Singapore, or with China, on parameters which are placed in a different context leads us to either frustration or to sound helpless. I don’t want either.”

Though, FDI under the current government has hit a new high, foreign investors cannot expect a red carpet welcome, even as India looks to rise on the ease of doing business ladder. She said at the same conference, “I would want to place this debate, and that is what the government is also trying to do, in terms of the way in which it is handling various policy questions. Pardon me, for want of better terminology. I think we have to temper down the aspirations somewhat when it comes to execution of policy.”

Chandrajit Banerjee Director general, CIIIt’s not surprising then that Chandrajit Banerjee, director general of the Confederation of Indian Industry (CII), is impressed by Sitharaman’s intricate understanding of industry issues. “She knows exactly what is in the interest of India and what is in the interest of the Indian industry. There are no compromises in her approach, be it at the global or national forum.”

One big initiative that came as a pleasant surprise for the industry was when the minister was categorical that the 2011 National Manufacturing Policy had outlived its utility. The policy provides certain tax and other benefits to boost the sector’s growth, besides creating 100 million additional jobs. However, Sitharaman felt that the policy had to be in sync with changing industrial reality.

 “In this debate, the Industrial Revolution 4.0 is rapidly catching up. Whether you like it or not, some industries are bringing in robotics in a very big way. Some partly make use of it, while others have not been impacted by this because they cannot afford it, or they do not want it. But we have to have a place for all the three,” she was quoted as saying.

 Whether as the finance minister Sitharaman will be able to see through the new industrial policy remains to be seen, given that the Department of Industrial Policy and Promotion (DIPP) is yet to release a draft document. Banerjee points out that though the minister understands the need for market access for India Inc, she equally feels that the industry had to improve its standards. In fact, the industry and the commerce ministry have set up a committee to look into the possibility of creating a national strategy for standards, to make Indian companies globally competitive.

The other sector that could find itself in focus could be MSMEs and start-ups. As the defence minister, she had initiated a match-making platform for start-ups along with the creation of common R&D testing facilities at affordable prices. In fact, the minister has been vocal that laws tend to be more favourable to big businesses. “The small ones are really not getting the fair play… if someone loses out in business once, to close his business and go away, there is a social taboo-like situation where he can’t open up another business again. But what are the situations that led him to collapse in his business? Was it even after fair play? Has he been given a level playing field? Most often not,” Sitharaman had commented at a conference.

Rajiv Chawla Chairman, iamSMEofindiaBut over the past five years, the narrative that has emerged from the MSME sector has been largely a negative one. Rajiv Chawla, chairman, iamSMEofindia, the biggest industry body in the North with more than 15,000 units under its ambit, has an SOS message for the new FM.

Since April 2017, the MSME ministry, without any official intimation, stopped disbursement under six flagship subsidy schemes, including lean manufacturing (to help companies reduce manufacturing costs), tech upgradation, and credit-linked capital subsidy scheme. “The MSME sector has had to bear the burden of a hastily and harshly implemented Goods and Services Tax (GST), not to mention demonetisation. The sudden withdrawal of the subsidy schemes further hit the sector,” laments Chawla.

The other big demand from the sector is that the government keep its promise of revising the definition of MSME units. In 2006, an MSME was defined as unit with a plant and machinery investment of 50 million. “The government had said that it would treble the limit and make it turnover based. The Cabinet in February 2018 announced the change in definition but it is yet to be notified,” reveals Chawla.

The only hope that the bulwark of India’s manufacturing sector sees in the new government is the appointment of Nitin Gadkari as the MSME minister. “We all know his execution track record as the roads and highway minister. We hope he does something similar in our sector,” quips Chawla.

The other key concern for small-scale units are the harsh penalty around GST filing and poor transmission of credit despite rate cuts. “Supreme Court’s ruling that a GST offence will be a non-bailable crime is too harsh for SMEs. You have to simplify the filing process, as even a small mistake can prove catastrophic for an SME owner,” explains Chawla.

Sanjeev Prasad ED and Co-head, Kotak Institutional EquitiesOn the transmission of lower interest rates, Sanjeev Prasad, executive director and co-head, Kotak Institutional Equities, points out that the government itself is the biggest impediment. “With a high deficit, government has turned out to be the biggest borrower, so how will credit flow? The central bank has to engage in more open market operations (OMOs), and let foreign money come into the bond market. Then it can partly address your transmission problem.” In other words, Mint Street has to look for cues from North Block.

Excuse Me, Governor

The one acrimonious relationship that the Modi government always had has been with the Reserve Bank of India (RBI). Both Raghuram Rajan and Urjit Patel exited on a bitter note.

The new appointee, Shaktikanta Das, comes at a time when the cash-strapped government has set up a panel under former RBI governor Bimal Jalan to consider dipping into the central bank’s excess reserves.

As per a Morgan Stanley report, the total RBI reserves are at 10.5 trillion, that is 28.9% of total assets. The two key components of this are contingency reserves of 2.3 trillion (6.4% of total assets) and 6.9 trillion (19.1% of total assets) on account of currency and gold revaluation account (CGRA). As per the Economic Survey of 2017, RBI’s reserves are at the high-end compared with other global central banks.

However, Prasad terms the exercise of transferring reserves to the exchequer as one fraught with risk. “It’s akin to a company selling its assets to give dividend to its shareholders. The RBI will have to sell down its foreign currency assets to transfer reserves to the government.” The biggest risk if RBI transfers the reserves is that it will have a lower import cover. “What happens if the country faces a BoP (balance of payments) crisis?,” questions Prasad. Already, India’s import cover has fallen to 9.1 months as of December 2018, from 9.5 months as of September 2018, following a $5 billion dip in reserves.

If the past is any indication, an accommodative central bank governor is what the new finance minister would be banking on. In 2016, before Patel took over as the governor in October, Rajan had steadfastly held the bank rate at 6.5% since April, citing inflationary concerns. It was at this point that eyebrows were raised when Sitharaman, as the then commerce minister, publicly chided the RBI. She said that she had no hesitation in asking the RBI to cut rates by 200 bps, as she believed the cost of credit in India was high. For hard-pressed MSMEs, approaching a bank was no solution given the prevailing interest rate. She urged the banking system “to be a bit more caring about the industry.”

While, thus far, Das appears to be in sync with the government’s outlook toward the economy, with Sitharaman, he will increasingly have to take a “consultative” approach. But what makes the task tougher for the FM is that the RBI is not the fix-it-all solution to the ills plaguing the economy.

Crisis Hour

To address the lethal cocktail of a stuttering economy, rising unemployment, falling private investment and a stretched fisc, the government will need to really take some tough calls on reforms, especially to give an impetus to the manufacturing sector. “Addressing the factors of production — land, labour and approval — is the need of the hour. If you want private investment in infra, you have to open up sectors such as railways and power distribution,” points out Prasad.

Importantly, the reforms cannot wait for 2022 when the Modi government will look at a majority in the Upper House. “The government has to work and convince the opposition about the real state of the economy,” says Prasad.

Given that housing has a multiplier impact on the economy, and the fact that fiscal incentives from the government will kick in only when the property is ready, the Centre can push through housing development. “Housing push will have some rub-off in the interim, and one can only hope that, by then, the economy would be doing better,” feels Prasad.

The Street is already factoring in a ‘reform blitzkrieg’ from the government and, if it is not visible by the end of the year, the market could start coming off its peak. “The only option then will be to put up with lower GDP growth and lower market multiple,” opines Prasad.

Will the new FM be able to shoulder the burden of expectations? While the jury is still out on that one, what makes Sitharaman different from her predecessors such as Jaitley, is her ability to push the envelope. According to a report in Hindustan Times, as the defence minister, her call for a daily briefing with all the service chiefs, attempts to bridge the distance between the armed forces and civilians and insistence on meeting the Defence Acquisition Council twice a month were met with exasperation and resistance. But, Sitharaman did not back down. “I told them that they could slam me or blame me but give me the benefit of trying to set things in order,” she was quoted as saying.

For an outsider, there is no doubt that Sitharaman has risen through the ranks through sheer hard work and acute intellect. Mohanty of Jagran mentions that it could be a matter of debate if her JNU stint prepared her for her extraordinary success.

But the Tamil Iyengar Brahmin believes her entire life is intricately woven in Krishna’s philosophy. “I draw inspiration from Krishna, who did not think war was untouchable and that it is one’s dharma to fight when necessary,” she said, in the interview with Hindustan Times. Given that in her new stint she faces a daunting task of reviving the animal spirits in the economy, Sitharaman would definitely need the grace of the divine.

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