‘Am Not In Favour Of Directly Stimulating Consumption’: Finance Secretary T.V. Somanathan

You have supported various groups, such as the start-up sector, through this Budget. However, the middle class feels let down.

There are considerable benefits for the middle class in this Budget, particularly in terms of tax reliefs on salaries and changes in income tax slabs. Additionally, several other schemes have been announced, including education loans for those who do not otherwise receive benefits under existing government schemes. This will cover the entire residual middle class.

Skilling loans and the new internship programmes are among the initiatives that will benefit the middle class. Overall, the middle class has received significant support from this Budget.

How do you plan to utilise the underperforming labour-intensive sectors to create 8 million jobs a year? An estimate suggests that we are creating 4–5 million jobs annually.

The answer to your question lies in the way you have formulated it. You mention that labour-intensive sectors need more support. The fact that our three new schemes are entirely targeted at the amount of labour employed means that these sectors have a comparative advantage.

The more labour-intensive you are, the more benefit you will get from these schemes. These are not schemes based on investment or production subsidies. If you are an MSME [micro-, small- and medium-enterprise], in footwear or in textiles, you will automatically benefit more from these schemes due to their designs. The idea is to support sectors that employ more labour. 

These initiatives are geared towards those more likely to create jobs. First, there is a benefit to them. Second, at the margin, this makes labour more attractive than machinery. I am not saying that everyone will shift to labour, but if you are making a marginal choice between further automating and using labour, this lowers the cost of labour for you.

Efforts to skill the workforce have yielded underwhelming returns in the past. What will be the difference this time?

This is a very different approach. It is fundamentally private sector and industry-centered, driven through CSR [corporate social responsibility]. We are not expecting the private sector to contribute from its profits or operational revenues. The government will provide the lion’s share of resources for the intern.

The company is expected to pay 10% of the intern’s stipend, which is modest and also incurs the incidental expenses of skilling. This approach involves putting the person on a job or sending them to a classroom, with no more than half of the time spent in the classroom. This is the intention.

All of this is to be done by redeploying their existing CSR budgets. We have calculated that the CSR expenditure of the top 100 companies alone is Rs 12,000 crore out of the total Rs 26,000 crore. It would not require a massive reorientation of CSR towards this. If they spend, let us say, 40% of their CSR on skilling initiatives, it will be sufficient.

But will not that be challenging?

It is challenging, I admit. In a way, it is an administrative and managerial innovation. That is why we are focusing on the top 500 companies. It is easier to monitor when you only have to oversee 500 employers. They have CSR money, and we have a manageable sample which we can monitor and interact with. These are the big employers, and their presence on the CV of an intern can make a difference.

There is a huge difference between growth of consumption and the overall economy. How will you address this gap?

Personally, I am not in favour of directly stimulating consumption. I believe we should focus on stimulating incomes through growth. When incomes rise, consumption will follow. Short-term or accidental increases in consumption through government interventions are not sustainable.

Even during Covid-19 in the US, many people received cheques in the hope of reviving consumption, but most of them treated it as a one-time windfall and saved it instead.

What is your view on land and labour reforms? Is achieving the target of increasing manufacturing’s share in gross domestic product to 25% feasible without implementing these reforms?

I think they are important, though I will not be able to give a quantitative answer. We need to reach a point where it is easier for industry to build factories. This year, we are implementing reform-linked investment loans to states, where one of the elements is to simplify the process of building factories by changing industrial land planning laws.

Land is a very scarce resource in India, which makes manufacturing less competitive. We are going to incentivise states to change their planning laws to allow more of the land to be used for construction.

Which recommendations of the Economic Survey are you planning to consider?

Some of the suggestions from the Economic Survey have already been addressed in the Budget. For example, it highlighted the disproportion between the taxation of capital and labour, and some corrective measures have been implemented. However, I am not in a position to specify which recommendations will be implemented and when.