The Indian economy, even critics admit, is seeing the stirrings of a revival. Finance minister Arun Jaitley concurs and believes that India is in the middle of its most important phase of economic reforms since 1991.
During an interaction with Mint, the minister spoke candidly on a range of issues. Edited excerpts:
Earlier, you had said we will need two years to repair the state of the economy. Have you sort of completed that repair?
I think what we are seeing is a very important phase of structural reforms. Each one of these steps, whether it is direct tax, indirect tax, FDI (foreign direct investment) reforms, auctions rather than discretion—each one of them is a big-bang step.
When the history of reforms is being written, post ’91, in addition to what happened in ’91, this will go down as one of the most important phases.
The only area I had not anticipated two years ago was three things on the downside and one on the plus.
The three downsides are firstly that the global slowdown is so intensive.
Two, the adverse impact of sectoral stress on the banks, such that the ability of the banks to lend for growth would itself be impaired.
Three, the extent of the stress on the private sector, wherein the government itself has to shoulder both policy and economic activity.
On the favourable side, I think oil prices partly compensated and it improved the ability of the government to spend more.
On the banking side, there still is a lot of stress.
There are two things which are taking place. We have to create both a political and an economic environment for the banks to have a healthy recovery. That can’t take place in an environment of suspicion. Business losses cause the twin balance sheet problem. You have to address the sector and reverse the cycles. That is more important.
Banks must have flexibility to settle. Settlements can’t be looked at with suspicion. Amending the Prevention of Corruption Act and creating an ombudsman mechanism, both will help.
This is what is already in the works—Prevention of Corruption Act. Ombudsman is already empowered.
When I say ombudsman, a body which will cushion the bank officials on the settlements.
Your recent budget was so strongly intended to target rural distress, are the results beginning to show?
I think these results slowly come out. I think irrigation is the first which will show an impact. Electrification is already showing impact. Swachh Bharat in schools and other places has shown a good impact. All our financial inclusion schemes have been a thunderous success.
The RBI governor said, the government has interacted with rating agencies; are you getting an upgrade from the rating agencies?
I won’t be able to comment on that.
Transmission of interest rates doesn’t seem to be happening.
From 1 April, we have an alternative system in place. Even before the new policy was announced, some banks had already transmitted some, so I think greater transmission will now take place. Notwithstanding the health of the banks.
State Bank of India has brought it (interest rate) down to 9.4% on housing loans—loans are already in the single digits. And if we keep inflation under control, look at the way government securities’ rates have come down, which means pressure on all state governments and central government for fiscal deficit will be much less because we are now paying lower interest.
Vijay Mallya didn’t appear before ED (Enforcement Directorate). Now what options are there?
The ED will decide. I think all these bodies, whether it is bankers or ED, they will decide strictly in accordance with the law; in case of ED, by the legal provisions, and banks will go by whatever is in the larger interest of the banking system.
Panama has not really moved ahead on talks on TIEA (tax information exchange agreement) since 2013; is the government looking at blacklisting it like it did in the case of Cyprus?
We will strictly go by what the global attitude is and practices are going to be. But even though these are referred to as Panama Papers, money is parked in offshore locations other than Panama. It’s just that evidence of that money happened to be in Panama... some of those locations are reasonably helpful.