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You always have to balance inflation, growth. It has to be done by institutions including RBI: Arun Jaitley

Arun Jaitley was Leader of Opposition in Rajya Sabha between 2009 and 2014, where he led the BJP’s charge against the UPA-II government.

Written by Shaji Vikraman , Sheela Bhatt | New Delhi |
Updated: July 19, 2016 8:38:41 am
arun jaitley, arun jaitley interview, indian economy, 25 years india, 25 years of indian economy, pv narasimha rao, opening of indian economy, 1991 economic reforms, 1991 economic crisis, manmohan singh indian economy, rbi, indian rupee, indian rupee against dollar, indian currency rate, indian currency, rupee rate, rbi, indian rupee value, india economic crisis, global credit rating, rupee value, foreign currency, rupee devaluation, business news, currency market, business market, stock exchange, latest news Finance Minister Arun Jaitley in his office at North Block last week. (Express Photo: Neeraj Priyadarshi)

Finance Minister Arun Jaitley was Minister for Commerce and Industry and Law and Justice in the cabinet of Atal Bihari Vajpayee. He has, at other times in his career, held charge of the Ministries of Defence, Information and Broadcasting, Disinvestment and Shipping. He was Leader of Opposition in Rajya Sabha between 2009 and 2014, where he led the BJP’s charge against the UPA-II government. He has witnessed the development of the reforms process closely, and is uniquely placed to compare the policies of the two NDA governments on a range of issues. 

This is part II of the interview. Click here to read part I.

For the last 20 years, (CPM leader) Prakash Karat has been saying that there is no qualitative, substantial difference between the economic policies of the BJP and the Congress, particularly on reforms. What is your view? What is the qualitative difference, and the fundamental difference?

I think reforms are extremely important to push up growth rates and, therefore, make sure that you distribute more resources for the benefit of the poor. Poverty alleviation schemes can be sustained by a growing economy, not by a deficit economy. I think the Congress’s Rao-Manmohan Singh combination took positive, important steps in 1991, but thereafter the Congress has been always apologetic. The Congress, I would say, has had a confused identity. Now, to just drive off the point against the Left argument. Almost every large state in India today — I am not talking of the Hill and Northeast states — has become a revenue-surplus state. So, its ability to spend for social justice is much more. There are only three revenue-deficit states in India. Andhra, because of the bifurcation, which will soon become a positive state, and the other two states which are still revenue-deficit are West Bengal and Kerala.

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arun jaitley, arun jaitley interview, indian economy, 25 years india, 25 years of indian economy, pv narasimha rao, opening of indian economy, 1991 economic reforms, 1991 economic crisis, manmohan singh indian economy, rbi, indian rupee, indian rupee against dollar, indian currency rate, indian currency, rupee rate, rbi, indian rupee value, india economic crisis, global credit rating, rupee value, foreign currency, rupee devaluation, business news, currency market, business market, stock exchange, latest news Finance Minister Arun Jaitley in his office at North Block last week. (Express Photo: Neeraj Priyadarshi)

So, now in 2016, what do reforms signify to you? As you have said, the days of big-bang reforms are over…

Dekhiye mujhe jo reforms signify karta hai, if I look ahead, what will be the natural course over the next one to two decades: global quality infrastructure, more urbanisation, better facilities in rural areas, much larger reduction in poverty rates, underemployed people from agriculture moving to manufacturing and services, and share of manufacturing going up, India trying to occupy the space which could be vacated by China in manufacturing. The real meaning of reforms would be to generate greater wealth and distribute it. Not merely the model from 1947-91, which was, ‘don’t concentrate on increased productivity, just concentrate on redistribution of resources’.

P Chidambaram, in an interview which was part of this series, when asked about reforms under you in the last two years, said, ‘show me one policy paper, only then can I comment’. So, the allegation is that you haven’t come out with the imprint of your or the NDA’s policy on reforms.

I think there could be stronger grounds for criticism. Look at the steps we have taken and compare [them] with the steps taken from 2004 to 2014.

In the same interview, Chidambaram said you were actually continuing povertarianism. The criticism was that after this “suit-boot ki sarkar” jibe, you have become very conscious, and in every interview, Arun Jaitley, and even Prime Minister Modi, speak about inclusion, Jan Dhan, Mudra.

That is the right policy. You see, it is only when you grow faster that you eradicate poverty. Growth is the best antidote to poverty. So, obviously our interest in reforms and higher growth is to remove poverty. I think he (Chidambaram) has understood us correctly.

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After this year’s Budget, you were criticised for the fact that despite your talk of growth, there has been little employment generation.

We have been, in the last two years, passing through a very critical phase. Critical because the global situation is obstructive, not supportive. When the world grows, everybody grows. 2003-09 were positive years of global growth. So, along with the global trend, demand increases, everybody moves up. 2014 onwards, we have been obstructed by global winds. Secondly, we had an inadequate monsoon. Thirdly, the UPA left behind a legacy of large NPAs and a stressed private sector. Positive in our favour was oil prices, as against these three drawbacks. Now, the first [achievement] was not to get into the global trend, and therefore, these have been the only two years in India’s history — and hopefully there will be more — where we will be the fastest growing economy in the world. And fastest in an adverse environment. Second, this growth is coming on the strength of three factors. Enhanced public investment, foreign direct investment and increased urban demand. Hopefully, this year’s monsoon will add rural demand to it. Now, these collectively may bring some activism into the private sector in many segments. We are independently trying to tackle the banking issues. Therefore, both at the level of areas where the economy grows, jobs are created, and also schemes like Mudra have encouraged a huge amount of self-generated employment.

One of the biggest worries is that automation could have an impact on growth, and that robotics, artificial engineering, will impact the manufacturing sector. China is the biggest buyer of robotics.

Automation and technology, it is being argued, will eat into jobs. I think before we jump into that era, it will take some time.

On banking reforms, the criticism is that the pace has been slow.

A huge banking reform is taking place in India right now. The 1969 change had left banks predominantly nationalised. Today, as we look at 2016, you have private sector banks in very large numbers. [They are] growing and [their] performance index is very high. You have a very large Internet banking [network]. You have payment gateways now. You have these small bank licences, newer licences, which have been given. And therefore, a large part of India’s banking has now already travelled beyond those nationalised banks. Even the nationalised banks have now learnt a lesson that they will have to be competitive in addition to their social obligations. Now, this low-cost financial inclusion, the whole world is surprised how we did it. A lot of credit goes to the nationalised banks for this.

Insurance, now you will find your consumer industry demands housing, etc. Banking is needed to support growth. What unfortunately has happened is that a few sectors got stressed because of the global slowdown. Power, steel, and even sugar was stressed in India. Now gradually, the stress is going away in some sectors and the government has played a proactive role there. UPA did not take even one step to remove banking stress. All of this was done by us in the last two years. Be it minimum import price for steel, or the Uday scheme for power. We revived highways. We are launching as many infrastructure projects as we can.

Now, for public sector banks, on the one hand you have to inject capital and on the other, remove factors that cause stress. And this whole policy of merger — smaller banks merging into larger banks. So there is a huge amount of banking reform which is taking place in India. It is not necessary that every reform has to be confrontationist in nature.

Do you believe in the theory that inflation has to be kept in check all the time?

You always have to balance inflation and growth. You will always need to do that. So if India has a very high rate of inflation, the cost to the common man increases. And thereafter, the rates themselves will go up, because money supply will have to be curtailed, and then that will impact on growth. So the balancing act has to be done by various institutions, including the RBI.

In NDA-I, of which you were a member, a Bill seeking to lower the government’s stake to 33 per cent in public sector banks was sought to be introduced. Is privatisation of banks as an option being thought of?

The banking space is completely altered. You have foreign banks, you have private sector banks, you have government banks, you have payment gateways. You have so many options that some of the debatable issues are going into the background. Like the whole debate on nationalisation — good or bad — by the subsequent changes has been overtaken.

Aren’t you turning the clock back actually, looking at the decision of the cabinet to revive public sector fertiliser units? Also, the clampdown on hoarding, and some of the other steps that are seen as anti-reform?

You see, you have tried to even make sure that some private parties can enter into those units. After all, you have to be to the extent that the units are there as an asset, their asset is to function. And if there is no private sector coming up at the moment, what do you do?

Do you think that Public Private Partnership or PPP is the way to go?

In infrastructure, the PPP model has to be encouraged. Because in infrastructure, government has to partially or substantially lead the way. There is a very strange dichotomy in the public-private relationship. Ordinarily, the private sector should lead the economy. But when there is stress, they want the government to take the first step.

Union Finance Minister Arun Jaitley arruves at the Parliament to present the Union Budget on Monday. Express photo by Neeraj Priyadarshi. 29 February 2016 Union Finance Minister Arun Jaitley arrives at Parliament to present the Union Budget. File/Express Photo/Neeraj Priyadarshi

Prime Minister P V Narasimha Rao and Finance Minister Manmohan Singh left behind a legacy. What is the legacy that you see Prime Minister Narendra Modi and Finance Minister Arun Jaitley as leaving behind?

That is something that people will judge.

There has been criticism regarding the decline of institutions and the quality of people manning institutions now. Particularly so after the lead-up to the exit of the RBI Governor, Raghuram Rajan. How do you see the relationship between the government and the central bank evolving in this context?

I don’t think the government and the RBI have ever had a problem in their relationship. At least that has now been my experience in the last two years. We had a very cordial relationship as far as the two institutions are concerned.

Many people think that Governor Rajan’s exit could have been handled better.

I have already said what I had to say on the subject.

Apart from that, how do you see the quality of other institutions?

As far as the financial sector is concerned, we have, if anything, significantly improved the quality of institutions. Now, the banking sector completely… the kind of insistence on the quality of CEOs, the selection process they are going through, the eligibility we have put for having members of the boards, making boards more accountable, there is a significant improvement. In other institutions, there is a problem. There is an issue, I would say. In some of them, there was an erroneous impression that only some Left intellectuals would completely dominate those institutions. The world has changed, and they have to accept that.

There is a feeling that the RSS has a certain view on how economic reforms should be pursued. Do you think they are having an impact on your decision- making? Because they are very vocal about it.

There are various sections of people whom we consult for their views on a subject, but ultimately we decide what is in the best interest of the economy.

You were also Minister in charge of Divestment in the past. The current policy seems to be one of incrementalism rather than privatisation like in NDA-I?

There are two things there. In the last two years, there has been turmoil in the markets. Earlier, a lot of commodity stocks were not doing well. There was no point privatising or divesting some of those things. Now we have asked NITI Aayog to make a list of things that should be privatised. They have done it. It’s a part of the agenda. Today we have all the four options. We have divestment, we have privatisation, we have buybacks, we even have asset sales. Don’t forget one factor, that we are not allowing any needless controversies in divestment. But we are going ahead with the plan.

What are your thoughts on the GST Bill? Will it happen?

GST was initially proposed by the Congress party in one of Finance Minister P Chidambaram’s Budget speeches. Thereafter, Mr Pranab Mukherjee introduced the Bill. They could not build consensus among the states. With some changes in the law, we have been able to bring about a consensus among the states. Almost all states are now supporting it. Virtually every political party is now supporting it. And the numbers in the Rajya Sabha are stacked in favour of the GST. We are in a position to have even the subsequent laws cleared, two of them by Parliament and one by the state legislatures. The Congress has raised some issues, and I have already made the government’s stand clear. I am in discussions with them, and I hope the Congress party takes a reasonable position.

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