India's next big regulatory push will focus on customs duty structure and processes, finance minister Nirmala Sitharaman said on Saturday. Speaking at the HT Leadership Summit 2025, she also stated that the economy is expected to grow at 7% or more this fiscal year and that the recent tax relief measures should boost consumer spending.

In conversation with Hindustan Times' editor-in-chief R. Sukumar, the minister also noted that the rupee's movement must be viewed in the context of India's broader growth story. Edited excerpts:

There is still quite a bit to do. And this is not a secret that I am revealing before the Budget. A complete overhaul of the customs framework is due. We need a much simpler customs system, one that people do not find tedious or cumbersome to comply with and one that is more transparent.

We are aligned with the World Customs Organization and we adhere to the standards they set for member countries. But even with that alignment, execution matters. If I may go back to the Income Tax Act for a moment, the earlier criticism was never really about the rates.

Of course, people prefer lower rates, but the real problem was the tax administration. It was painful, sometimes agonising, and that is what led to the unfortunate term "tax terrorism."

We worked hard to change that. We simplified processes and moved towards a system that is faceless in letter and spirit.

The same principles, such as more transparency, simplification, and minimal discretion must now apply to customs.

At the same time, the risk of illicit or contraband goods entering the country is a serious concern. But does that mean scanning everything manually? Or can we minimise physical interface and reduce discretion? We are examining this comprehensively.

We have also steadily reduced customs duties over the last two years, and in the few areas where rates remain above optimal levels, we will have to bring them down. So yes, customs is my next major clean-up exercise. Whether the media chooses to call it a big-bang reform is up to them.

Real growth numbers are very encouraging, but nominal growth appears weaker and tax revenues are linked to nominal GDP. Is that a concern for you?

We want inflation to be moderate, and the GDP deflator has reached very low levels. If anything, it may need to rise slightly to stimulate growth. So no, it does not worry me. The various factors will play out and settle into their natural levels, much like the exchange rate. The rupee too will find its own level.

There are multiple angles to currency movements. One is economic, but there are also political and nationalist angles. Every time the rupee weakens, people feel India has weakened. Opposition parties raise the issue—just as your party did, quite effectively, when you were in the Opposition. You've said the rupee will find its natural level. But isn't the current level a bit weak?

I am tempted to say many things. Currency movements are extremely sensitive. I'm not avoiding your point that we criticised the government on the rupee when we were in opposition. Yes, we did. Consistently. And as you say, perhaps better than the current opposition. But remember the economic context then: inflation, especially core inflation, was very high, the economy was fragile, and the currency was weakening. In such a situation, it's natural for anyone in the opposition to raise concerns. We did so in every Parliament session, and those not in Parliament spoke outside as well.

I am not saying today's currency debate is fundamentally different. But you have to look at the fundamentals of the economy. Look at where India stands now—our growth, our position as the world's fourth-largest economy, soon to be third.

These facts place India on a different footing, and any debate on the currency must take those realities into account. So before speaking about the currency, one must first speak about the economy.

Yes, when the rupee weakens, exporters can benefit, and I'm sure some of them already are. But that does not mean I am complacent. Some observers have also noted that purely by coincidence, the weaker rupee provides some cushion at a time when tariffs were imposed on us. I am not convinced by that argument either. Even if true, it does not satisfy me. The point is that the strength of the economy must be read alongside currency movements.

Your Budgets have consistently focused on fiscal consolidation. But at the state level, populist spending is rising, and freebies seem to have become a way of life. I believe there is a difference between welfare and freebies—welfare is essential; freebies are just electoral incentives. Is this something you've discussed with state finance ministers in the GST Council?

Not so much in the GST Council, but definitely in one-on-one meetings. My concern is not the freebies themselves, but whether states can afford them.

Several states borrow heavily, and sometimes specifically, to finance these schemes. This becomes a burden when they struggle to service earlier high-cost loans. I don't want to say I'm counselling or advising them, but we are having constructive conversations.

If they need support from the Centre, not monetary support, but guidance, the department of expenditure, the department of economic affairs, and the budget division are willing to sit with state officials. We are encouraging states to restructure their loans, even if it means paying penalties to retire very expensive debt. Some states simply cannot service their loans anymore. Borrowing to repay old borrowing is extremely poor-quality borrowing.

I approach these discussions not as the finance minister talking down to state ministers, but as a colleague offering help. And I must say, some states, across party lines, have been open to this and have benefited significantly after restructuring their loans.

Ultimately, all of us, the Centre and the states, must stay focused on reducing borrowings. Governments cannot run with zero borrowing, but unsustainable borrowing creates an unfair intergenerational burden. I won't get into its moral dimensions, but it is simply not right.

But have freebies become a political compulsion?

Politics is competitive.

Your government has taken two major fiscal leaps this year: the income-tax changes and the GST rate rationalisation. The GDP numbers have also come in. Were the outcomes as expected? The assumption behind the tax changes was that more discretionary income would lead to higher spending.

The income-tax changes came into effect only from 1 April, so their impact on collections will be known next year. But we are already seeing increased spending. As for GST, its changes affect all sectors, and we need to look beyond just one sector, like automobiles. We must assess the impact over the medium term, not just one festival-heavy month.

Economic theory suggests that when prices fall, people buy more goods and services, consumption rises. Only when taxes go beyond a certain threshold, demand plateaus as the Laffer Curve illustrates. Both the income-tax and GST changes will influence consumption patterns, and we will understand their full impact over the coming months.

We have seen strong second-quarter growth, and I expect overall growth this year to be 7% or higher.

There is concern that higher consumption, especially among the middle class, may be reducing savings. Lower savings have their own economic consequences. Does this worry you?

I have been analysing savings trends and where savings are being parked. Traditional savings in banks and post offices may not be growing as fast, but retail investments in markets and mutual funds have increased. Savings today take multiple forms.

Similarly, assets owned by the middle class are rising. Additional rooms are being built in houses, and second homes are held for personal use.

So, savings are not falling. They are being channelled differently, into investments and assets. We should not limit the conversation to traditional savings alone.

You have presented the most consecutive Budgets by any finance minister. From 2019 to now, we've seen the pandemic, supply-chain disruptions, and tariff-related headwinds. There have been domestic and global challenges. How do you look back on this journey for the economy and for yourself?

For the economy, the journey has been extraordinarily challenging. First, the pandemic. Then the war disrupted supply chains for essential goods like food grains and fertilisers. Then there is a need to strengthen governance and sustain growth. The election year also constrained capital expenditure.

I list these to remind ourselves that the Indian economy has faced a series of unprecedented shocks, mostly global. We also had our border challenges, both from state and non-state actors. Just when Jammu & Kashmir was stabilising and its economy was improving, tourism came to a complete halt after recent events. I appreciate the chief minister's commitment to restoring the region's economy.

Challenges keep coming, often unexpectedly. While domestic issues can be managed, global uncertainties today weigh heavily on all economies, including ours. But thanks to the Prime Minister's stable leadership and consistent policies, India continues to demonstrate strength and attract investments.

I must also commend Indian retail investors, who have shown remarkable understanding of markets and a willingness to take calibrated risks rather than keeping all their savings in fixed deposits.

The Indian economy is undergoing profound change. We are all part of that transformation. The larger macro picture is still emerging, but each of us is playing a role in this shift.