We are Do­ing all the Right Things

I think the econ­omy is pick­ing up. We can see a boom­ing ser­vice sec­tor. We can see im­prove­ment in man­u­fac­tur­ing sec­tor, lot more ac­tiv­ity in min­ing sec­tor and if agri­cul­ture does well it’ll leave an im­pact....I hope this year we will have a good mon­soon

The Economic Times - - The Jaitley Interview -

The gov­ern­ment will cre­ate a mech­a­nism to make banks con­fi­dent about set­tling bad loans with­out fear­ing that these deals could be open to scru­tiny from in­ves­tiga­tive agen­cies down the line, fi­nance min­is­ter Arun Jait­ley told Deepshikha Sikar­war. On the Naren­dra Modi gov­ern­ment’s per­for­mance, he said the first two years will go down as the most im­por­tant phase of re­forms since 1991. Edited ex­cerpts from an in­ter­ac­tion:

You had, af­ter tak­ing over, said the econ­omy would re­quire at least two years of re­pair. Where are we on this? I think what we are see­ing is an im­por­tant phase of struc­tural re­forms. Each of the steps whether in di­rect tax, in­di­rect tax, for­eign di­rect in­vest­ment (FDI) re­forms, auction rather than dis­cre­tion — each one of them is a big-bang step and when the his­tory of re­forms is writ­ten, post-1991, ir­re­spec­tive of what hap­pened in 1991, this will go down as the most im­por­tant phase of re­forms. The only area what I had not an­tic­i­pated two years ago (was) three things on down­side and one on plus. Firstly, that the global slow­down is so in­ten­sive. Two, the ad­verse im­pact of sec­toral stress on the banks and that the abil­ity of banks to lend for growth it­self be im­paired. Three, the ex­tent of the stress on pri­vate sec­tor wherein the gov­ern­ment has to shoul­der both the pol­icy and eco­nomic ac­tiv­ity. On the favourable side, oil prices partly con­trib­uted and it im­proved the abil­ity of the gov­ern­ment to spend more.

We have re­formed, we are spend­ing more, we are spend­ing in the right di­rec­tion and we are stick­ing to fis­cal pru­dence. We are do­ing all the right things in a global en­vi­ron­ment which is not friendly. So, as­sum­ing these things had hap­pened in a friend­lier en­vi­ron­ment, you’d cer­tainly be grow­ing much faster. I think the econ­omy is pick­ing up. We can see a boom­ing ser­vice sec­tor. We can see im­prove­ment in man­u­fac­tur­ing sec­tor, lot more ac­tiv­ity in min­ing sec­tor and if agri­cul­ture does well it’ll leave an im­pact. First two years rain gods have not been kind to us, so I hope this year we will have a good mon­soon.

Can the econ­omy with­stand the shock of another bad mon­soon? We are a strong econ­omy and we can live with what­ever sit­u­a­tion is cre­ated, but we may be bet­ter off with a good mon­soon.

You are headed for the IMF-World Bank meet­ings as also to meet for­eign in­vestors. What will be your mes­sage? The key meet­ings are in Wash­ing­ton where you get an idea of which way the global econ­omy is headed. Clearly, even the de­vel­oped world and global agen­cies don’t have an idea of how long the present phase is go­ing to be.

No­body pre­dicted the de­cline of oil prices and peo­ple only spec­u­late that it would set­tle at $40-50 a bar­rel in the fore­see­able fu­ture. You have now started hear­ing an eco­nomic ar­gu­ment that you never heard ear­lier that slightly higher prices may be good for the global econ­omy be­cause ear­lier the world was ar­gu­ing to the con­trary. Global sit­u­a­tion is gloomy. Com­pared to the rest of the world, In­dia stands out. But I think the good thing about In­dia is that even though we stand out In­dia has be­come more as­pi­ra­tional and so nei­ther we are sat­is­fied nor the coun­try is sat­is­fied with where we are. We want more.

For us I think there are three-four vari­ables on which our fu­ture growth will de­pend. One, how long the present oil prices sit­u­a­tion will last. Present regime suits us. It’s gloomy for some, but it’s a boon for us. Two, we keep our fin­gers crossed on what sort of mon­soon we are go­ing to see. Three, the mon­soon will have an im­pact on do­mes­tic de­mand, which, in turn, will have an im­pact on the pri­vate sec­tor. Four, when will the global head­winds re­ally be­come the tail­winds. And to this a fifth chal­lenge is added — so far we’ve been able to trans­act it with rea­son­able suc­cess that we don’t al­low our re­form process to slow down. So, the whole process of step af­ter step, ses­sion af­ter ses­sion is mov­ing. I think the im­me­di­ate chal­lenge is now go­ing to be bank­ruptcy law fol­lowed by GST (goods and ser­vices tax). I have a third one ready, which is

ON VAR­I­OUS SCHEMES Ir­ri­ga­tion will be the first to show its im­pact. Elec­tri­fi­ca­tion is be­gin­ning to show its im­pact. Swachh Bharat in schools is be­gin­ning to show some im­pact. Our fi­nan­cial in­clu­sion schemes have seen a thun­der­ous im­pact

banking sys­tem.

Can pub­lic sec­tor banks re­ally re­form with­out see­ing a change in own­er­ship? I don’t think In­dia’s po­lit­i­cal opin­ion is ready for it. So why should I the­o­ret­i­cally em­bark upon an area for which the polity is not ready. I think the politics is ready for pro­fes­sion­al­is­ing their man­age­ment, for hav­ing board-gov­erned banks, for hav­ing con­sol­i­da­tion, for more com­pe­ti­tion from pri­vate sec­tor, for more pub­lic sec­tor banks be­ing run as pri­vate sec­tor banks.

You had men­tioned IDBI Bank in your Bud­get speech. But there seems to be some re­luc­tance in go­ing for­ward on sell­ing stakes in it? No. Please wait for a few days.

Do you see the forth­com­ing state poll re­sults hav­ing any im­pact on your dis­cus­sions with Congress on the GST? My pref­er­ence will be to do GST through con­sen­sus be­cause every­one, in­clud­ing Congress govern­ments, will have to im­ple­ment it. And, every­one must be pre­pared. The only stick­ing point is 18%. I have no dif­fi­culty in ac­cept­ing 18%. It’s just that it should not be in the con­sti­tu­tion. And, if you keep gold out as , Arvind Ker­jri­wal and Rahul Gandhi have sug­gested, there is no way we can main­tain it. It’s a strange thing — on one hand they im­pose an 18% con­di­tion and on the other they want lux­ury goods out — keep a prin­ci­pal lux­ury item out so that 18% rate can­not be achieved.

So, does that mean you will not roll back ex­cise duty on gold jew­ellery? This is move­ment to­wards GST. Gold has to be­come part of GST. You can’t have gold not be­ing taxed and its ex­emp­tion be­ing sub­sidised by tax­ing aam aadmi com­modi­ties. Don’t for­get it’s the rich­est who con­sume 80% of the gold in the coun­try.

How do you pro­pose to get Congress on board with re­gard to GST? In prin­ci­ple, they ac­cept GST and there­fore they will see the rea­son­ing in vot­ing for it. I keep talk­ing to lead­ers at var­i­ous lev­els.

Do you ex­pect the in­ter­est rate to come down speed­ily? From April 1, there is an al­ter­na­tive sys­tem in place, so even be­fore the new pol­icy was an­nounced, some banks had trans­mit­ted cuts. Greater trans­mis­sion will take place now not­with­stand­ing the health of banks. State Bank of In­dia (SBI) has brought down home loan rates to sin­gle dig­its. And, if we keep in­fla­tion un­der con­trol… look at the how G-sec rates have come down. This would also put pres­sure on states andthe Cen­tre to keep the fis­cal deficit in check as in­ter­est rates have come down on their bor­row­ing.

You have al­lowed some states to bor­row more… States which have been fis­cally pru­dent have been al­lowed to bor­row more for devel­op­ment. I think there will be in­cen­tives for states to re­form. Ex­cept North East, among the big states, the ones that are deficit are West Ben­gal, Ker­ala and Andhra. Andhra is only tem­po­rar­ily in deficit be­cause of the di­vi­sion. We will sup­port Andhra till it be­comes sur­plus. Ker­ala and West Ben­gal will have to see that the poli­cies that they fol­lowed for four-five decades have caused them this sit­u­a­tion. Do you see states re-cal­i­brat­ing spend­ing af­ter the fi­nance com­mis­sion award? It’s a mixed bag. There is a greater ten­dency now to­wards so­cial sec­tors and in­fra­struc­ture, both of which are per­fectly ac­cept­able. There is also a temp­ta­tion in the name of wel­fare to go in for cheque dis­tri­bu­tion.

Have the non-eco­nomic is­sues that keep crop­ping up time and again robbed the gov­ern­ment of the mea­sures taken on the eco­nomic front? I think both are in­de­pen­dent. I think me­dia is more ob­sessed with the non-eco­nomic is­sues be­cause they un­der­stand them bet­ter.

In con­nec­tion with the Panama papers, the tax ju­ris­dic­tion has not come around on the tax in­for­ma­tion ex­change agree­ment. Are you look­ing at black­list­ing Panama like Cyprus for non-co­op­er­a­tion? We will strictly go by what the global at­ti­tude and prac­tice are go­ing to be, but even though these are re­ferred to as Panama Papers, these monies are parked in off­shore lo­ca­tions other than Panama. It’s just that the ev­i­dence of those monies hap­pens to be in Panama. And, there­fore, some of those lo­ca­tions are rea­son­ably help­ful.

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