Millennium Post

Next 2-3 years very critical for economic reforms: FM

Finance Minister Arun Jaitley has said that the next 2-3 years will be “very critical” as the government plans to implement a series of reforms that will help India reach its “destination targets” of growth higher than the current 7-7.5 <g data-gr-id="58">per cent</g> rates. “(In) India today neither the government, the people or the industry are very excited about a 7-7.5 per cent growth rate because everybody realises, including me and the Prime Minister that probably our potential is a little higher than that,” Jaitley said here .

During a discussion with president of investment firm Warburg Pincus and former US Treasury Secretary Timothy Geithner organised by the think tank Council on Foreign Relations, Jaitley said that his government has covered a “lot of distance” in the one year that it has been in power. “Having covered this distance, the next two-three years are going to be very critical because the series of reform steps, which are in the pipeline, are all to be implemented.

We now have identified all the problem areas and one by one as we go resolving most of them, <g data-gr-id="43">hopefully</g> we should reach what our destinations targets are,” he said. Jaitley, who is on a 10-day trip to the US, said the <g data-gr-id="40">macro-economic</g> indicators and “bare statistics” look good but the aspirations are much higher. 

He said in the last few years, India’s credibility as an economy was being shaken. “The last few years we lost the way once again. The reason why we lost way (is that) in terms of political administration and in terms of policy, we went wrong.

“In terms of political administration, within the government structure the prime ministers never had the last word, authorities were outside the government structure - the kind that could happen in a communist state. Devoid of that political authority, decision making came to a standstill. The Prime Minister did not have the last word and there were serious apprehensions that decisions were being taken or not taken for the wrong reasons,” he said.

He said that on the policy front, where the country went wrong was that the government started concentrating not on increasing productivity or generating wealth but on just distributing what the country already had. 

“It did not work. We were falling off the global radar but in India there was a huge change that had 
taken place between the 1970s and this generation where people were getting restless and they knew this is not our potential,” he said. 

Jaitley said the results of the 2014 national elections showed that “charismas of <g data-gr-id="53">dynasty</g>,” which had a very important role to play, did not work. “(Narendra) Modi’s personal acceptability was about 15-20 points higher than the party’s acceptability. That means the leader was growing taller than the party because of his image of being decisive. Obviously the aspirations are going to be very high. 

“We had a dual task of expanding businesses, encouraging economic activity to increase and at the 
same time being concerned because you have to blend it with prudent politics,” the minister said.
Underlining that people do not invest in “uncertain environments,” he said as the new government came into power, it gradually opened up the economy to boost growth. Taxation structures had to be rationalised and a major announcement has been made that the direct corporate tax rates will come down to 25 <g data-gr-id="52">per cent</g> over the course of four years.

“We could not afford to live with a much higher taxation regime because that would distract investment coming into India.” 

‘Retrospective decisions creating liabilities’
Allaying concerns of American business community and investors, Finance Minister Arun Jaitley has said that any decision which is retrospective and creates fresh liabilities is not acceptable. “I have no difficulty in saying that any decision which is retrospective, except in some very unusual circumstances, which creates fresh liabilities is certainly not acceptable,” he told a New York audience when asked about the concerns of the US business community with regard to retrospective taxes. 

“Therefore, ever since the present government has been formed, we said it when we were not in government and therefore we’ve lived up to our word, this government will not legislate anything that is retrospective,” he said during an interaction at the Council on Foreign Relations, a think tank. 

“Many of us who have done business in India have experienced retroactive changes to some of the investment regulations by the government or the Reserve Bank of India. In the spirit of expanding the opportunity for foreign investment, I’d like you to please talk a bit about the philosophy of those retroactive changes making transactions a bit more difficult to underwrite,” Jaitley was asked by a US businessman.

Responding to a question on infrastructure, Jaitley said the Union Government has started putting money in this sector. “The government has started putting money substantially into the sector so the sector will start moving. The resources have come from the budget. The resources have come from the increased tax on petrol and diesel.
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