Finance minister Arun Jaitley on Friday said the Indian economy is the world’s fastest-growing major economy, but the best is yet to come. He also said the Congress has positioned itself as “against development and growth”, otherwise there was no reason for the party to oppose reforms measures such as the goods and services tax (GST) bill.
In an interview to Hindustan Times, the finance minister spoke on a range of issues. Excerpts:
The government's data shows that India grew at a robust 7.3% in 2014-15. Corporate earnings, however, have recorded the weakest results in several years. Is the recovery not as real as official statisticians would have us believe?
The Central Statistics Office (CSO) is a highly credible organisation. They have implemented the fresh basis for GDP calculation with effect from past date and, therefore, they apply a uniform figure. On the back of envelope calculations, you can’t judge GDP figures. For instance, if you take certain indicators like a 7%-plus growth rate in manufacturing last year, a huge jump in indirect taxation revenues in the first two months of this year even without the additional revenue raising measures, the jump is significant. The revised service tax (14% from 12.36% earlier) start from June. These figures are for April and May. So, if you have a 39.5% jump in indirect tax revenue — customs, excise and service tax — is actually indicative of increased economic activity. That’s the best yardstick.
Have we turned the corner yet?
There were three significant legacies damaging to the economy that had been left behind by the United Progressive Alliance (UPA) government. The first was discretion in matters of allocation of natural resources. This led to serious allegations of corruption, criminal prosecution and cancellation of licences. This had disrupted the economic environment. The second was the credibility of the Indian taxation system. We were seen as regressive and retrograde with unsustainable demands and retrospective legislation. The alibi given by (former finance minister) P Chidambaram on rectifying these mistakes is that he didn’t have 282 (seats in the Lok Sabha). Along with allies, which the UPA had managed, there were more than 300 (members in the Lok Sabha). These legislations, being financial legislations, only required to be approved in the Lok Sabha. So, this is a very poor alibi. Both these legacies, in terms of following the transparent auction route and putting a lot of these adversarial taxation issues to rest, in the first year of the NDA we have been able to substantially correct it. The third significant damage was to the banking sector. The NPAs were 6% (of total advances) and along with stressed assets, it was a total of 13%. With the slowdown in the economy, the possibility of correcting these NPAs was very challenging. For the first time, for the quarter-ending March 31, 2015, the NPAs are down 5.2%. We have to wait for another two to three quarters both for the economy to pick up, the banks to take corrective action and for us to put some resources into the banks for capitalisation. The situation can be rectified. That process has started, although it is still work in progress.
Critics such as former finance minister Chidambaram, have pointed out that you have allowed the controversial retrospective tax issue to linger. Your comments.
I have more than corrected it. We have chosen not to allow it to linger. Our policy is that we will not legislate retrospectively. Two, no new notices on those controversial legislations will be issued without CBDT’s (Central Board of Direct Taxes) permission. Not a single notice has been issued. And pending disputes will be resolved through a judicial process—either courts or arbitration. Some have been resolved in relation to transfer pricing. Some are still pending. And I hope they will be resolved. As against a government, which created problems and did nothing to resolve it, we have put most of those issues to sleep.
The NDA government had vowed to eliminate “tax terrorism”. Yet, what prompted the tax department to issue retrospective demand of minimum alternate tax (MAT) on FIIs such notices? Wasn't it avoidable?
There is no retrospective demand. There was non-performance between 2012 and 2014. The opinion of the Authority on Advance Rulings (AAR), saying that foreign institutional investors (FIIs) are not exempted from minimum alternate tax (MAT), came in 2012. The then finance ministry slept over the issue. It is only on March 31, 2015, when assessing authorities had to issue notices because otherwise the demands would have become time-barred and the assessing authorities would have been questioned by our authorities as to why you didn’t act, that the FIIs woke up and then mentioned to the Supreme Court to resolve the issue. The government also asked the Supreme Court to resolve the issue. I, in any case with effect from April 1, 2015, had given a clarificatory amendment. So, I have resolved the problem for the future as against a finance ministry that did nothing between 2012 and 2014. The past will be answered by the Supreme Court.
India's biggest tax reform initiative—goods and services tax (GST)—has cleared the Lok Sabha hurdle. But without bi-partisan support from the Congress, how do you expect to get it past the Rajya Sabha?
The Congress has positioned itself against development and growth. Therefore, the Congress wants to present itself in that light. Otherwise, having pioneered GST, there is no reason for them to oppose it. I hope, they reconsider their position and stick to their earlier pro-GST stand. I am targeting the date (April 1, 2016), for roll-out of GST.
By when will you announce the details of the compliance window for disclosing overseas hidden assets? There is also a view that the new black money law is draconian. Your views.
The period we will notify. It is different from the VDIS. In VDIS, you just paid the tax after making a disclosure. Here, it is a new tax that is being imposed. It is a fresh taxation measure on an undisclosed asset. It is a tax on undisclosed money outside. I have to give a period for compliance, which we will give. Those who kept undisclosed money, the tax to them will be 30% plus 30%, meaning 60%. In a VDIS, you don’t pay a higher tax. Secondly, after the compliance period closes, you are liable to pay 30% plus 90%, meaning 120%, and also suffer a prosecution. This is not how a VDIS is structured. It is only those who are uncomfortable with this law. That is a giveaway. Those who do not have undisclosed assets outside the country have nothing to fear.
How would you respond to your political opponents’ criticism that "aache din" remain elusive as no productive jobs have been created in the economy in the past year?
More jobs have been created in the past 12 months than 2012 and 2014 if we go by the same data. But to turn the economy, it takes a reasonable period of time. I think we should take some satisfaction in the fact that we are the world’s fastest-growing major economy and yet I believe we are recovering. The best in our economy is yet to come.
How do you plan to get labour reforms going in the face of stiff opposition from trade unions?
There are many ways of using labour reforms to add to efficiencies. The government will consider all options.
The opposition doesn't seem to be in any mood to relent on its hard stand against it. How do you get around it?
I have seen the attitude of most farmers’ organisations in the country. Many of them have had a series of meetings with me and I find their attitude quite positive. It is not correct that we did not take the Opposition into confidence. On both the bills (land acquisition and GST), we have discussed it formally and informally, with the opposition parties. That is why, except the Congress, every party supported the GST.
Forecasts point to a deficient monsoon for the second successive year. Aren't you worried given that food prices have started climbing sharply?
So far, we are in the midst of monsoon. At present, though I keep my fingers crossed, the monsoon seems to be proceeding reasonably well. Even the forecast showed some shortage in the north-west region, which is otherwise an irrigated region. Even if rains are deficient in that region, it should not affect food output or cause undue concern on inflation.
How do you get banks to lend more to corporates to boost investment and spin jobs?
I have had a meeting with the banks today itself. They are in a position to lend. Retail credit off-take has improved. It is the corporate credit off-take that has to improve. Public investment is increasing, retail investment is increasing but the private sector still has to get into the investment cycle. Under-utilised overcapacity is one of the reasons and they have probably over-leveraged themselves.
The new I-T return form, although simpler than the controversial 14-pager in April, still seeks to collect some details about people's foreign travels, etc. Why is it necessary?
I was in the US when the first form was released. I had no prior inkling of it. I immediately had it stopped. After consultation with stakeholders, I pushed for a far simpler procedure. Today for most taxpayers, you don’t need a consultant to fill an I-T return form. It (the new revised form) doesn’t ask you details of expenditure, but shouldn’t the taxmen have some idea about the correlation between your income and expenditure or the correlation between your income and lifestyle?
Isn't the disinvestment target of Rs 68,000 crore this year ambitious, given the uncertain market conditions?
It is ambitious. We have already got a lot of disinvestment (proposals) in the pipeline. I am only waiting for the markets to calm a little.
India has set a target of leapfrogging to 50 by 2016 in the World Bank’s Ease of Doing Business ranking from a lowly 142 currently. Is that achievable?
It is a very challenging task. Many procedures have been simplified in many ministries. But I would say it is still a work in progress. A lot of jobs will have to come in the manufacturing sector. Therefore, your interest rates will have to be competitive. Your land availability has to be there. Your power availability at reasonable cost has to be there. Fortunately, power availability is in excess today. Your procedures for business have to be far simpler. The number of permissions has to be lower and easier.
Are you planning a redesign of UPA’s showpiece rural job scheme MNREGA?
It is not a redesign. But this year, I intend adding to the quantum because I want to improve rural income … we want to put more money into the rural sector. In the paragraph in the budget I had said I intend to put in more money if resources permit, and resources do permit now.
What’s the feedback you are getting from the global investment community?
There is a lot of interest and curiosity. The number of proposals has increased. For instance, last year, a lot of FDI came through the automatic route. We had 353 proposals under the Foreign Investment Promotion Board (FIPB) a total increase of 39% in the first year itself.
What has been the progress on the financial inclusion schemes?
In two social sector security schemes, Jan Suraksha Bima and Jeevan Jyoti Bima, 10.17 crore policies have been sold in a month. Besides, there are 15.5 crore accounts under the Prime Minister’s Jan Dhan Yojana scheme. We intend to add more such schemes.
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