Yesterday, Finance Minister Arun Jaitley was in Mumbai to participate in the CNN Asia Business Forum 2016 held on the sidelines of the ongoing Make in India Week. In a discussion with CNN’s Fareed Zakaria, he spoke on a number of issues like taxation, the Make in India initiative and the government’s economic policies.
Zakaria put the question to the Finance Minister that there was a fear that the Make In India initiative would turn out to be just a marketing gimmick without actually addressing the hurdles that have stopped India from becoming a manufacturing hub in the past, namely, lack of infrastructure, unviable taxes, regulatory concerns and transport. To this, the FM agreed that the tax regime needs to be stable and predictable. “Unreasonable tax demands never give results. We are getting rid of all legacy issues and now only two remain. In terms of direct taxes, we are bringing down corporate tax in 4 years. In indirect taxes we have already introduced GST in parliament. It has passed in one house and needs to pass in the upper house,” he said.
On being quizzed about the value of GST and the fact that it is being watered down and might not be of relevance, Jaitley said that with something likes GST, one needed to start from somewhere. He also alluded to the fact that in a federation like India, it is difficult to get the different states to abandon their respective tax regimes and move to a centralized one, though he pointed out that all but two states have agreed to the move.
Zakaria then asked the Finance Minister whether the current drop in oil prices represents a golden opportunity for India. “History has shown us that the nations that believe in austerity do not work out, while those that show stimulus find a way out,” he pointed out.
The Finance Minister replied that the windfall due to drop in oil prices was being used to improve infrastructure. He also said that urban demand had increased though rural demand has been lagging behind due to two bad monsoon seasons. “Agriculture is one area where return on investment is immediately seen but we have seen less investment in this sector in recent years,” he added.
The next question put to the FM was whether the government’s economic policies represented the quantum reform that Arun Jaitley had spoken about earlier rather than incremental steps. Jaitley argued that the sum total of all steps taken by the government came out to be much more than just some incremental reforms. “The government has continually moved in one direction,” he said.
The topic now turned to the government’s investments in PSUs with Zakaria pointing out that some of the loss making PSUs (in the banking sector) might be costing nearly 70-75 per cent of the government’s savings. He asked the FM whether the government would consider exiting from such loss making units.
Jaitley opined that the country had not reached a stage where the government could afford to move out of public sector banks. He pointed out that public sector banks played a huge role in financial inclusion. “Two years ago 42 per cent of India did not have a bank account. We used public sector banks to enable them to open bank accounts,” he said.
However, he agreed that the boards of these banks should be professionally run with limited interference by the government. He also said that the government is looking to bring down their equity in the banks to around 50-52 per cent, though completely exiting the sector was not part of the government’s strategy. Speaking about other PSUs, the FM said, “Strategic sales are part of the government’s agenda but the markets have been volatile, when the markets stabilize it will part of the strategy.”
Questioning the government’s enthusiasm for boosting the manufacturing sector, Zakaria also asked whether there was a need to look at more innovative ways of job creation but the FM was of the opinion that innovation would itself lead to job creation. He also said that the nature of manufacturing as we know will change in the coming years.
On being asked what he would like to be remembered for, Jaitley said that the main aim was to ensure India realizes its economic potential so that poverty decreases.