Finance Minister Speaks on Economic Challenges, Opportunities for India
A chance encounter led to an appearance at SIPA by Arun Jaitley, India’s finance minister, who spoke about economic challenges and opportunities for India just two days after he released a much-anticipated national budget.
Arvind Panagariya, the SIPA faculty member who recently joined the cabinet of Prime Minister Narendra Modi as a key economic adviser, had run into Jaitley at the airport. He asked Jaitley—who was visiting New York for a family commitment—if he could find time to speak at SIPA, and the minister agreed.
With little more than 24 hours’ advance notice, the March 2 event drew a full house of students and faculty to the Kellogg Center. President Lee C. Bollinger was on hand to join Dean Merit E. Janow in welcoming Jaitley.
“This is a sign of globalization—when the minister of finance releases his budget, it is world news,” Bollinger said. “We are all deeply invested, literally and metaphorically, in India.”
Jaitley spoke and took questions for about an hour. Following the event’s conclusion, numerous guests approached the minister to say hello or take a souvenir photograph.
On the importance of growth
Jaitley said that in recent years, India had concentrated on redistribution rather than attempting to increase the size of the nation’s economy. At growth rates of less than 5 percent, he said “foreign investors had written India off, while domestic investors were disillusioned by prospects.”
“For over three decades, China grew by 9 percent a year on average,” he said. “If we are able to reach 8 percent growth this year, and grow further to 9 or 10 percent, and continue that pace for many years—that’s what India requires.”
“We need a correction in the political debate: [people ask] are you pro-industry, or pro-poor, as if there’s a conflict between them,” he said. “We need resources, and can’t get them until we grow by 9-10 percent. If we continue at that rate for 10 years, we will have created a better infrastructure and brought down poverty rates.”
On tax reforms
If passed, the new budget would eliminate India’s wealth tax and replace it with a surcharge of 2 percent on India’s wealthiest – those earning 10 million rupees, the equivalent of about $162,000. Such an assessment is “cleaner, neater, simplified, higher yield,” Jaitley said.
In a similar vein, he said a lower corporate tax rate without exemptions would also lead to greater revenue. He cited “enthusiastic, upbeat, bullish” investors who have concerns about the existing tax system, and said rates must be more competitive with neighbors like Hong Kong, Singapore, and Vietnam.
Jaitley also called for better tax administration and easier mechanisms for foreign direct investment. High-profile tax disputes, he said, had hurt the country’s image without raising revenues.
Other reforms
Jaitley spoke of the need to open “previously closed areas of economy,” like insurance, and the need to consider subsidies more carefully.
He advocated for the creation of public bidding mechanisms to develop natural resources like coal and minerals, with more money going to the producing localities.
Jaitley said the process of acquiring land for public purposes must be simplified: “As people move from agriculture to growing areas, you need housing for the poor and for migrants, but [right now] you can’t get the land.”
In summary
In India’s first decades of independence, Jaitley said, emphasis was on national sovereignty, while in the last three decades there has been more emphasis on the individual Indian states.
“It’s a truly federal country,” he said. Given the balance of tax revenue between states and national government—62 percent goes to the states, versus 38 percent to the central government—he suggested that a greater share of spending should be decentralized as well.
At the same time, the tradition of preventing important projects because of the interests of regional or local officials—whether motivated by corruption or merely politics—must end.
All told, Jaitley said he wants “social security mechanisms for the poor, a little more money in the pockets of the middle class, and a better investment environment for business.”
India's Finance Minister, Arun Jaitley, speaks about economic challenges and opportunities for India.