Stressing on making the most of favourable low commodity prices, Finance Minister Arun Jaitley on Saturday said that the country will have to become a low-cost manufacturing hub for the success of the Make in India programme. Addressing the 57th National Cost Convention here, Jaitley said, as far as the services sector is concerned, India unquestionably has the potential to become a low-cost service provider in the world.
“But are we only going to be satisfied being the back office or also being the global factory?” he asked. “If Make in India has to succeed, we actually have to become a low-cost manufacturing hub. And I think there are several global factors which collectively are suiting us,” he said. The cost of wages in China, he said, is going up and so, India is back in competition. Lower commodity and oil prices are also acting as tailwinds.
“The world has never seen this kind of low price regime. And India as a net buyer benefits from this low price regime... it is extremely important at this junction we fully make use of this global situation,” Jaitley said at the event organised by the Institute of Cost Accountants of India (ICAI).
Highlighting the importance of cost in global market, he said that everyone wants best goods and services at the cheapest rate and factors such as poor infrastructure, capital and lack of proper trade facilitation add to the cost of goods and services. “To cut costs, both at micro and larger levels, there are a lot of improvement and changes required in any system,” Jaitley said.
The finance minister was of the view that ICAI can play an important role in cutting cost of products and services because “in a world of competition, you actually have to beat your closest competitor”.
Speaking at another conference in the Capital, Jaitley remained non-committal on any slippage in the fiscal deficit target, saying that there are pros and cons of boosting growth by higher public spending. His comments came a day after RBI Governor Raghuram Rajan warned of borrowing more to spur spending for higher economic growth, saying such a move could risk macroeconomic stability of the country.
The Minister said there are different views from industry and economists on whether the government should scale up public investment in next fiscal or stick to the deficit
target. “I can tell you I have been consulting all shades of opinion. This is the first time that I have come across people holding sharply divided views and each one has a strong argument in his favour. There is an argument being given that in the current economic situation public investment holds the key.
“Then there is another argument, and the alternate argument is also equally important with regard to credibility of government. One year you deviated from target, will you do it again and particularly if oil prices are one-third of what they were. If you still can’t meet the target, when will you do that? And, therefore, both the arguments have a way,” Jaitley said.
He said that there is also another argument that in a fast moving situation globally, whether it was necessary to fix a target beforehand. “Of course the government has benefit of these three views. Predominantly industry is of the view that you must spend more, economist view is sharply divided,” he said.
Jaitley said that the final decision on the fiscal deficit target would be spelt out in Budget based on the kind of resource, growth potential, tax buoyancy for the next year that the government anticipates. “I think all these inputs will go into determining the policy of the government,” he said.
‘Subsidies are for needy,’ Jaitley reminds wealthy
Finance Minister Arun Jaitley said on Saturday that the Government per se is not against subsidies but maintained that these are meant for the needy and not the wealthy, remarks that come a day after Prime Minister Narendra Modi spoke of rationalising and targeting of such benefits. “The Prime Minister had a valid point and the valid point is at the end of the day, the government per se is not against the concept of subsidies,” he said here.
With 25 per cent of the people below poverty line, a very large section of population is entitled to cheap food while the farm sector stress too has to be supported. “If you look at the whole structure of the Indian economy, its agriculture sector, particularly in the last two years due to the poor monsoon, has been stressed. Therefore, you need to put funds in that particular sector. Therefore, there would be targetted subsidy,” he said.
Jaitley said that the Prime Minister had stated on Friday that subsidies are being rationalised and not abolished. “I think that is the correct statement. They must be targetted to people who are entitled to it, not for the wealthier people,” he made it clear. Modi, he said, was correcting the “imbalance in the discourse” where rationalisation of subsidies is often construed as abolition of subsidy.
“He said, therefore, there are segments which are entitled to it. Therefore, there would be a target,” Jaitley said, adding people don’t use the same context while giving some kind of tax breaks to other sections of the economy.
India needs a small powerful corporate sector as well as strong powerful agriculture sector, he said. “I don’t think we can put these two sectors in conflict with each other. You need to make sure every sector of the economy grows,” the minister added.
Making a case for an 8-9 per cent growth rate, Jaitley indicated that his coming Budget will not resort to “sheer populism” for good ratings and will focus on structural reforms. “The Indian economy has to be out on sounder platform. Don’t forget India is one of the few economies of the world that survived 2001, 2008 and 2015 (global crises),” he said.
Stating that fundamentals have to be strong enough, the finance minister said, “The Budget has to weigh the areas of weaknesses where investments are required. Therefore, I have to pitch in that direction. If a Budget for the cause of ratings goes in for sheer populism, it’s not necessary that the cause of economics or even sounder politics that we are aiming at (is served).”
Jaitley said that the Government would not pursue retrospective tax claims and added that he would like the remaining two or three disputes to get resolved “as expeditiously as possible”. Taxes which are payable must be collected but “there must not be unfair taxes” as unfair assessments bring “bad name” and no revenue, he said.
Jaitley highlighted the need for carrying on structural reforms, saying the focus should be on infrastructure, irrigation and farm productivity.
“We probably have potential to have a growth that is higher than what we have achieved. This 7-7.5 per cent is not our optimum range. The Indian normal is 8-9 per cent category. And it is only when you grow at that pace, you can get rid of poverty,” he said.