The finance minister has had to tackle inflation, India’s stance in the WTO and easing regulatory hurdles. That was the easy part.
Even before the general election ended in May, it was clear that if the Narendra Modi-led Bharatiya Janata Party formed the government, Arun Jaitley would head one of the important ministries on Raisina Hill, the area of Lutyen’s Delhi that houses some of the most important government buildings.
But Jaitley’s move to North Block, the part of the Hill housing the finance ministry, was not easy. Contesting his first Lok Sabha election, he lost the race in Amritsar to the Congress candidate by nearly one lakh votes, raising questions within the party about his eligibility to be granted a key ministry. Jaitley, who has also been given charge of the defence ministry, is a man with as many detractors as admirers in New Delhi and within his own party.
Often teased in Delhi circles as the only Congresswala in the BJP, Jaitley was seen by many as an obvious choice for the crucial portfolio of finance. He got the job because he has a shrewd strategic mind and knows how to work Delhi. In addition, the BJP needed someone who had the nerves to handle a ministry that was practically in the ICU despite valiant, though sometimes questionable, efforts by his predecessor and friend, the Congress’s P Chidambaram.
Both Prime Minister Narendra Modi and Jaitley had only a few days to present their first budget to a Parliament and nation that had been promised big-bang economic reforms. As Jaitley presented the Modi government’s first budget on July 12, many who had expected major reforms were left disappointed even though some praised it for pointing in the right direction.
As a member of the Federation of Indian Chambers of Commerce and Industry said, this was a “benefit of the doubt” budget because of the short period in which Jaitley and his team had to think things over. The real test will come in 2015.
Huge challenges
A change in government is not the only factor that drives ministerial reform. The bureaucracy also needs to endorse the new policies. In getting the bureaucracy on board, Jaitley’s team in North Block has faced plenty of challenges, such as the minister’s inability to address the thorny issue of retrospective taxation.
Other things that kept Jaitley busy as soon as he took over were controlling inflation, India’s stance on subsidies at the WTO and making it easier to do business by removing regulatory hurdles. But the enormity of reforms needed to transform the Indian economy and pushing its growth rate to more than 6% require willpower and the stomach to take politically unpopular measures, especially in sectors such as power.
“There are three or four sectors where we just cannot continue doing business as usual,” said Pratap Bhanu Mehta, president of the New Delhi-based Centre for Policy Research. “In areas such as energy we are too dependent on imports and on carbon-intensive energy sources. If we are not on an alternative energy path soon, which means low carbon and technologically efficient [forms], we could be out of the development game in 15 to 20 years.”
It is the support system for business that requires key changes. Foreign industry remains bullish on India but has made its displeasure known over the slow progress on issues such as foreign direct investment, land acquisition and retrospective taxation.
On the domestic front, many industrialists have asked for a revitalised subsidy regime, one in which the government gives subsidies wherever required instead of using them as a populist measure to get votes. At the same time, as a vital component of the global economy, India could find it increasingly difficult to persist with its subsidy regime even if it makes sense on the domestic front.
Back to the drawing board
Globalisation and climate change will become central to India’s economic story. The Asian Developmental Bank concluded in a recent report that South Asian economies such as India could lose 1.8% of their GDP by 2050 and 8.8% of their GDP by the end of the century to climate change.
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