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 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
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.