The Task is Cut Out for FM Arun Jait­ley

In­vest­ment, in­fla­tion and GST top the agenda

The Economic Times - - The Edit Page -

The fi­nance min­istry must hit the ground run­ning. Here are the im­me­di­ate tasks be­fore fi­nance min­is­ter Arun Jait­ley. First, he must build con­sen­sus and im­ple­ment the goods and ser­vices tax (GST). This will elim­i­nate the maze of in­di­rect taxes and du­ties, many ad­min­is­tered by state gov­ern­ments, that frag­ment In­dia into dozens of re­gional mar­kets. The GST will be federal in na­ture, so Jait­ley needs to build con­sen­sus about the GST among state gov­ern­ments. BJP-ruled states had dragged their feet on GST, but with Naren­dra Modi as Prime Min­is­ter, they are likely to shed their in­hi­bi­tions. The GST will give a boost to the econ­omy by mak­ing the tax sys­tem sim­ple and trans­par­ent. Work on the GST be­gan when Atal Bi­hari Va­j­payee was prime min­is­ter in 2000. It will be ap­po­site if the first BJP govern­ment to come to power since then were to fi­nally im­ple­ment it.

Sec­ond, Jait­ley has to fo­cus on boost­ing real in­vest­ments on the ground. The liq­uid­ity cri­sis is over: In­dia is flush with funds pour­ing in as debt and eq­uity. But un­less much of these funds trans­late into shovel-ready projects, the ex­cess liq­uid­ity will cre­ate bub­bles in as­set mar­kets, with dev­as­tat­ing ef­fects when they burst. The out­go­ing govern­ment had cleared sev­eral large projects; this govern­ment should push them. Third, state-owned banks need funds to ex­pand and grow, and a cash-strapped govern­ment can­not af­ford to re­cap­i­talise them. Jait­ley’s work here is cut out by the Nayak com­mit­tee’s sug­ges­tion: to form a hold­ing com­pany for govern­ment’s shares in banks and use that eq­uity to raise new funds for state-owned banks. As­set re­con­struc­tion com­pa­nies (ARCs) should buy off the banks’ bad debt and, with govern­ment sup­port, a debt mar­ket must mop up the ARCs’ bonds.

Fi­nally, in­fla­tion is high and con­cen­trated in food, which the RBI can do lit­tle about. The govern­ment must dump large vol­umes of grain, across many small mar­kets, to curb grain prices. For fruit and veg­eta­bles, statelevel APMC Acts should go. And ru­ral power must be en­sured to run cold chains.

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