While the entire country is contemplating a drastic impact of demonetization on the economy, the government is yet to admit any significant slowdown. In an exclusive conversation with BTVi’s Siddharth Zarabi, Commerce Minister Nirmala Sitharaman says the note ban may at best impact the third quarter (October-December) GDP numbers. The pace of implementation of demonetization is progressing on a war footing. Soon, all the two lakh ATMs in the country will be functional, she said.
SIDDHARTH: What is the progress on demonetisation implementation?
NIRMALA: At the moment we feel that the currency is reaching different parts of the country. We do recognise that there will still be some rural and semi-urban areas where the currency is not reaching adequately. But I think at the moment we are giving a clear emphasis on rural areas, farmers and co-operatives. The ATMs are almost near 100 per cent calibration. So sooner, all the two lakh ATMs should all be functional.
SIDDHARTH: Nearly three weeks have passed. One of the points that have emerged is its impact as far as trade and commerce is concerned across the country. What is your latest assessment? We have been hearing reports about textile mills closure, impacts on ceramic tile factories and even tea gardens. How deep is the impact there and by when do you think it will get rationalised?
NIRMALA: Let me first talk about the tea gardens. On a request from Assam as early as the November 13 that they may have cash crunch effectively hurting payments to the tea workers and on their request we ensured that the District Magistrates will be able to provide the necessary cash to pay the wages of the workers. And this provision was later extended to Kerala and probably Tamil Nadu. West Bengal came into the picture few days later and I am told that they also wanted that extended to them. It was extended to West Bengal too. If there is a difficulty about payment now, we have issued from the Tea Board necessary instructions for both sides, in the sense those who have to provide the cash and those who receive it, that it should be facilitated. This provision has been made by a written order. Now it is unfortunately a truth that many of the tea estates have not opened accounts of some of their workers or many of their workers even after Jan Dhan given that kind of an emphasis. As a result what would have happened otherwise, from account to account fund transfer is not happening. These are areas completely bogged down by this argument and dispute that minimum wages are not being paid to the workers. If accounts are opened fully and payment is made into those accounts, won’t it sort out this major welfare issue? And that is why I would think it would have been much better for all of them to have demanded workers rights in opening the accounts in time and demanding the payment and then you will know whether they are getting the payment or not. It didn’t happen. It is not even happening now and we are emphasising on it. And on this, I would have thought the Left party should be with us.
SIDDHARTH: Absolutely. In fact we also get to know of certain factories getting shut down because a large part of their workforce, 80 per cent in one specific instance, is not paying PF. Workers are being put on a separate register and now because for compliance purposes that factory has been temporarily shut down. So clearly it sends a sorry signal with regard to the industry and its compliance with the labour laws.
NIRMALA: And the worrying bit is even now I can understand as an emergency, a relief measure, if we from the government will have to address it, it is one thing to keep in mind the workers’ welfare and do it. But eventually what is workers’ welfare? If the industry still claims that we need cash for payment and they don’t understand or they don’t reply to the implied question that why aren’t these workers not having bank accounts? The whole country’s basic attitude, the behavioural attitude about dealing with the rights cannot any longer be kept as a lip service. The Prime Minister’s intention is while we want to attack black money, we also have to create an ecosystem where it doesn’t further perpetrate such practices whereby basic rights are being affected.
SIDDHARTH: I think there is absolute condemnation of such practices. Now, I want to ask you in terms of the economic recovery. I think you have also acknowledged in past that there is going to be a short-term impact. What is your assessment about the recovery?
NIRMALA: First thing, between November 10-18—I had a review meeting post that with all the export promotion bodies—there was a clear sign of such sectors like handicraft, the steel aggregators, handloom and so on. They had a problem because of this much discussed issue of accounts not being there, cash being paid and so on. And even then there was not this voice that “we may have to shut down because if you don’t allow us to deal in cash, we will be in problem” didn’t come through. All of them actually did say that we agree that this is going to give a cleaner economy. But subsequently, I have not heard – even as the easing is happening from the government side – I have not heard anything from any of them. I feel that if there is an impact which is going to happen, it will be confined to this quarter and it is not going to stretch any further.
SIDDHARTH: That is an important point because I was going to ask you about certain economists and projections that we have heard of 50 basis, 100 basis, 150 basis points dip in growth rate. We also had a very noted banker say that such projections are absolute non-sense and I am quoting his words. Where do you stand on this issue?
NIRMALA: No, I clearly did indicate earlier also in the observation which Dr Manmohan Singh, our former Prime Minister, had made that there may be a dent in the GDP to the extent of 2 percentage point. But I think it is premature to calculate any such figure. To make an assessment at this stage may not really work out and it will probably be quite difficult. Given the situation, if it is a steady going economy, if it is an economy where all factors remaining roughly constant you may be able to make an assessment of what it will be. But with this kind of a shake-up, I think it will be near impossible to arrive at a figure of how much is it going to dent, if at all, in the national annual GDP. I certainly will say that if there is an impact, it will be in this quarter but I will not at the moment risk a number.
SIDDHARTH: Would Government spending lead the recovery in the last quarter of the year which is also the year for the Budget presentation?
NIRMALA: This government in principle has believed in government spending in public infrastructure creation because we feel that it is the best way to spend that kind of money to those who are in different parts of the country in creating the asset and at the same time getting some real payments being made. So we believe in those routes. But we should also understand that the banks today are going to be with quite a lot of liquidity. There should be some formulation to deal with that. It has to be something where the banks also are not going to be inconvenienced. If they are going to have some kind of a restriction on them, that should be very short term and after that they should also be comfortably placed to handle their regular core banking operations. So I would think that there is going to be a lot of liquidity, there is going to be a situation where the government is spending as always as we believe will continue in public infrastructure creation and the government’s objectives that the poor should get affordable housing, the farmers should get irrigation so that no farmer is left without an output.
SIDDHARTH: What kind of interest rate outlook do you feel is likely to pan out in the next quarter and beyond?
NIRMALA: It is difficult at the stage and I would think it is better we leave that observation to the monetary authorities because I think given the situation today with so many different factors radically changing, they will be the best judge on it.
SIDDHARTH: One of the points is that the demonetisation purely in economic terms is being described as anti-stimulus as it contracts demand. You could use any description for that. But that leads me to the question that after an anti-stimulus, is there a possibility and necessity that you feel yourself as a senior member of the Cabinet where measures to dampen this impact need to be taken, be addressed by the government in the coming weeks and months.
NIRMALA: There is definitely a lot of discussions as to what we have to do next in order to make sure that the economy settles down and on that of course the Finance Minister is engaged with a lot of experts, he is talking to a lot of people and I am sure a due call will be taken on that.