INDIA'S ECONOMIC MANDARIN
Finance minister is convinced the country’s economy is primed to take off.
Arun Jaitley, India’s finance minister, is upbeat about prospects for that country’s economy, telling a seminar in September, “If people miss out on India now, they will be missing out on a lot.” The gloom that surrounded the Indian economy up to 2014 has lifted, he said. India is now the fastest growing of the so-called BRIC countries, a group of emerging economies that includes Brazil, Russia and China. But it wants to go even faster.
The new government has introduced clarity and consistency in policy where there was none, said Mr Jaitley. Liberal in its approach to economic management, it has opened up defence, insurance, railways and real estate to foreign investment, even putting an end to retrospective taxation.
Thanks to a more decisive administration, many stalled ventures have re-started. Businessmen don’t visit his office any more with complaints of held-up projects, he said. The government is determined to continue shortening the time between the decision to invest and the launch of new ventures, streamlining the bureaucracy, said Mr Jaitley.
The government also plans to set up infrastructure funds and embark on building 100 smart cities. And it has launched huge, unprecedented financial schemes to help the poor, he said.
ULTIMATE DELHI INSIDER
A few key reforms, notably passage of the goods and services tax, have been held up because of “obstructionist tactics” by the opposition, which has a majority in the upper house of the Indian Parliament, said Mr Jaitley. But this will ease when the composition of the upper house changes next April, he said.
He acknowledged India has been lucky to reap the benefits of lower prices for oil and other commodities (of which it is a net importer). But with the new government, a sense of change is in the air. “Political hurdles have been marginalised,” said Mr Jaitley.
He is the ultimate Delhi insider, cut from a different cloth compared with most other members of the ruling Bharatiya Janata Party (BJP) – often referred to as India’s Hindu nationalist party. Socially liberal, urbane, in many ways Westernised, and seemingly secular in outlook, he has been described as “the right man in the wrong party”.
A one-time student activist, he was jailed for 19 months during former prime minister Indira Gandhi’s repressive “emergency” rule during the mid-1970s, which he opposed. During his career as a lawyer, he successfully defended BJP leaders facing all manner of charges, as well as taking on high-profile corporate cases.
Despite his many years in politics, Mr Jaitley does not have a massive support base. But he knows just about everybody who is anybody in India’s corporate world, judiciary, media and politics. A consummate networker, he has known Indian Prime Minister Narendra Modi long before the latter became a national figure. He is said to be the cabinet minister who is closest to Mr Modi, who has entrusted him with three ministerial portfolios: information and broadcasting as well as corporate affairs and finance.
“I’m not sure what the economic strategy of the previous government was,” said Mr Jaitley. “Pre1991, India was a regulated economy. Post-1991, India was a reform economy. In the reform economy, one of the strategies India followed consistently was to try and ensure that levels of productivity, efficiency and individual initiative must go up and the state must step out, except in certain specific areas.
Talking about the post-2004 period when the Congress Party led the government, he said: “There was an effort that moved in a slightly different direction. As a result, decisions were not being taken, there was no implementation at all, and there was a changed policy directive. Instead of concentrating on increasing productivity and wealth generation and letting the advantages of that accrue to everyone including the underprivileged, the new strategy focused on essentially the redistribution of existing resources. That is why we came down to below 5% in terms of growth.
“When the going was good, we were still doing well, but when the going got challenging globally, we slowed down terribly, and that is the stage at which the previous government relinquished power.
“The previous government had some retrograde policies”, said Mr Jaitley, such as corruption in the allocation of natural resources and over-aggressive tax policies with retrospective legislation, to which investors objected. “India needed a break from those kinds of policies.”
The BJP won the 2014 general election by a landslide, which was largely fought on issues of basic material needs, such as about bringing electricity, water, sanitation, roads, schools and hospitals to India’s masses. Previous elections often turned on issues of caste and other forms of identity.
GROWING INCREASINGLY ASPIRATIONAL
“There is an important change taking place in India. The Indian middle class has grown. Some 35- 40% of India is middle class, so now you’re looking at 350 to 400 million people. Below the middle class are those who aspire to get into the middle class, and I’ll refer to this group loosely as the neo-middle class. Even below that, the people who are not privileged to either be part of the middle class or the neo-middle class, they want to get out of the curse of poverty. So India, as a whole, has become increasingly aspirational. The villagers are no longer willing to live the life of the underprivileged. With programmes such as ‘Swachh Bharat’ (Clean India) or a toilet in every home, water supply in every home, schools for everyone, a pukka (proper) road for every village, we are improving the quality of peoples’ lives,” he said.
“This change is evident from the fact that a 7-7.5% growth rate is not satisfying India. India is restless, India is becoming impatient. So the agenda of politics is going to change into developmental politics.
“Of course, there will be issues of identity in a complex society such as India, but those issues will not occupy centre stage anymore. The 2014 election almost defied caste. I used an expression on the eve of the election that this election is no longer about arithmetic. This is about a changed chemistry, and that almost came true.”
Mr Jaitley predicts next month’s election in the northern state of Bihar, where the arithmetic of caste has traditionally been decisive, will be more about chemistry.
We turn to this government’s policies for the poor, which some economists (particularly those whose sympathies lie with the Congress Party or left-leaning parties) have criticised as inadequate. In October last year, 28 eminent economists from India and abroad wrote a sharp open letter to Mr Modi alleging the BJP government was attempting to dilute the landmark rural jobs scheme, the Mahatma Gandhi National Rural Employment Guarantee Act (MNRega) launched by the Congress government in 2005. Under the scheme, every rural household is guaranteed 100 days of wage employment a year.
Such allegations are unfounded, said Mr Jaitley, suggested they are based on political point-scoring. “We actually retained MNRega and increased its allocation,” he said. “We eliminated a lot of the middle agencies, such as state governments, district administrations and even panchayats (village councils), where monies are held up or even diluted. We are now transferring funds directly from the centre into accounts of the beneficiaries.
“The recipients are getting more money. We increased the allocation to MNrega because India had two less-than-average monsoons.
“This government’s social security programmes are unprecedented in the history of India, with 180 million people linked within a few weeks to banks through ‘Jan Dhan’ accounts [a people’s money scheme launched in August 2014 under which basic banking accounts were provided to India’s masses] and 120 million people benefitting from two government insurance schemes. A pension scheme for the poor is also in place and the government is considering providing crop insurance. There is no inconsistency between economic reforms, a higher growth rate and service to the poor.”
CAMPAIGN PLEDGE
India’s government can now target benefits to individuals via its data platforms, which also include the “adhaar” scheme -- a biometric national identification card project launched by the previous administration and accelerated under the BJP government. Funds for state scholarships, old age pensions, widow pensions and other benefits are now transferred directly to individuals’ bank accounts.
“Nobody can claim a central benefit and a state benefit twice if it’s on an adhaar platform,” he said. “The misuse can only happen if it’s done manually. This can save a lot of money, which can be utilised constructively elsewhere. Our experiment in the provision of cooking gas subsidies has been very good. We’ve been able to use the platform and save almost 30% of the money.”
In keeping with its campaign pledge, the government is also cracking down on illegal assets stashed overseas by Indian residents, which India’s Central Bureau of Investigation estimates at US$500 billion.
In May 2015, the government passed the so-called “Black Money and Imposition of Tax Bill”, which provides a window of opportunity for resident Indians to declare their overseas assets and pay taxes and penalties, otherwise they face hefty fines and jail terms if caught.
Does Mr Jaitley expect large sums of money to return to India from overseas?
“I don’t know, it depends on how many people have money abroad and how many comply. Those who don’t comply run the risk of future action. But I certainly think this culture of taking monetary assets outside the country illegally will come to an end,” he said.
Isn’t he a bit overstretched by three ministerial portfolios?
“I think in public life we have to find the time for discharging a lot of responsibilities. I can only tell you that I sleep well,” he said.
Change is evident from the fact that a 7-7.5% growth rate is not satisfying India. India is restless, India is becoming impatient. So the agenda of politics is going to change into developmental politics