Jaitley bats for growth, reform; rebuffs critics

Finance Minister Arun Jaitley on Tuesday said that he would prioritise growth over cutting the budget deficit, urging critics in his ruling party and the political opposition to back Prime Minister Narendra Modi’s economic reform agenda.

Modi is seeking to regain the initiative after a bruising election setback earlier this month triggered a minor rebellion by elders in his nationalist party.

With parliament due to convene for its winter session on November 26, the opposition has been emboldened by its gains in the eastern state of Bihar. Arun Jaitley brushed aside the restive senior leaders in his party, saying “people must have a sense of responsibility when they speak.” He was speaking to Reuters over breakfast at his hotel in Dubai during a visit to attract investments from Middle Eastern sovereign wealth funds.
Modi won India’s strongest general election mandate in May 2014, but the Congress party he vanquished has fought a successful rearguard action against his reforms in the upper house, which represents India’s federal states.

That has prevented the passage of  goods and services tax (GST) — what would be the most ambitious tax reform since independence in 1947. By unifying Asia’s third-largest economy into a single market the GST would add as much as two percentage points to the economy, some have estimated. Jaitley said the government was ready to discuss all issues with the opposition to pass a key constitutional amendment that would pave the way for the GST to become law.

“Without compromising on the architecture itself, and keeping a general consensus between the states and the centre in mind, I think a discussion is reasonably possible,” he said, signalling flexibility over a proposed state levy that some say would make the tax complex to administer and defeat its original aim of cutting red tape.

India is the fastest-growing major economy in the world, outpacing even China. Jaitley said he hoped growth would exceed 7.3 per cent in the fiscal year to March, and had the potential to reach rates of 8-10 per cent.

In his budget, he estimated growth of 8.1 to 8.5per cent in the current fiscal year. The World Bank has, meanwhile, forecast growth of 7.5 per cent.
The government seeks faster growth to create work for the one million young Indians who enter the workforce every month.



With corporate and bank balance sheets strained, the government would prefer to channel buoyant tax receipts into infrastructure spending rather than slash its deficit target.

“I would stick to my fiscal deficit target of 3.9 per cent (of gross domestic product) this year and the priority will be to spend whatever resources the government has within the fiscal deficit target,” said the 62-year-old lawyer, a member of Modi’s inner circle and cabinet heavyweight.

Jaitley declined to be drawn on the fiscal deficit target that the government would set at its next budget. In addition to the GST, the government plans to push ahead in the winter session of parliament with reforms to bankruptcy law, changes to foreign direct investment rules and a faster disputes resolution mechanism for public contracts.

Last week, the government eased foreign direct investment (FDI) rules for 15 sectors. Courting deep-pocketed sovereign wealth funds in the Middle East, Jaitley said he expected the Abu Dhabi Investment Authority (ADIA) to start investing in India soon and eventually commit up to $75 billion.

ADIA’s first investment in India could be with India’s National Investment and Infrastructure Fund, a government vehicle set up in August with a mandate to co-invest with strategic partners and own 49 per cent of projects.

“Long-term investors want to ensure predictability, growth and returns. We also need to have legal structures in place,” Jaitley said. “India has now proved to the world its commitment to reforms. India is growing faster than other emerging markets. There is a stability and predictability of the policy regime.”