Indian Finance Minister Arun Jaitley Preaches Patience on Economic Reforms
Modi’s government is focused on expanding manufacturing, lightening the regulatory burden on companies
NEW DELHI—Indian Finance Minister Arun Jaitley has a simple message for critics pushing for deeper change in the economic policies of the world’s largest democracy: It’s coming, be patient.
In an interview Thursday, Mr. Jaitley, a corporate lawyer and close ally of Prime Minister Narendra Modi, touted progress India’s new government has made, from easing foreign-investment limits in some industries to cutting red tape and improving infrastructure.
Last May, Mr. Modi and his Bharatiya Janata Partywon a landslide electoral victory by appealing to voters frustrated with India’s failure to close the development gap with its more affluent neighbors in East Asia.
That set up high expectations, especially among foreign investors, that Mr. Modi would move quickly to implement a broad, free-market overhaul.
Mr. Jaitley sought to temper such views. “In a parliamentary democracy there are changes, there are improvements, there are reforms and there are large incremental jumps,” he said. “We’ve certainly promised a significant change. We are trying to usher in that significant change.”
An important focus of the government, Mr. Jaitley said, is to lay the groundwork for an expansion of manufacturing in India at a time when growth in China’s booming economy is slowing and wages there are rising.
“This is an historic opportunity that has visited us,” Mr. Jaitley said. It is “an opportunity we have to exploit to the fullest.”
During Mr. Modi’s first 10 months in office, Mr. Jaitley said, he has focused on restoring the “credibility” of the government, making it easier for companies to invest in the world’s second-most-populous country and working to streamline taxes and make them more predictable.
Indian economic growth, meanwhile, has been accelerating. The finance ministry predicts gross domestic product will expand by between 8.1% and 8.5% in the coming fiscal year, which begins April 1. The current year’s growth is expected to be 7.4%.
Both figures reflect an update this year to the Indian statistics office’s method for estimating GDP, which significantly lifted recent growth rates and baffled some analysts who see continued weakness in the economy. Exports, for instance, contracted by 15% in February. Industrial production and manufacturing activity have been wobbly.
Foreign investment, though, has been rising. India received $25.53 billion of foreign direct investment in the 10 months to January, according to the trade ministry. That is about 36% higher than the $18.75 billion investment received during the same period the previous year. On Thursday, Ford Motor Co. opened a new, $1 billion plant in the western state of Gujarat, which it said would nearly double its capacity in India and allow it to triple the number of vehicles it exports from the country.
Skepticism remains, however, among some economists and investors about how far such a pragmatic, step-by-step approach can transform the economy. Worries also remain about taxes.
Indian tax authorities, for example, earlier this month slapped energy company Cairn India Ltd. with a $3.3 billion levy under a retroactive tax law for gains made by its former parent company in a share-transfer transaction about eight years ago.
The new government has declined to repeal the retroactive tax legislation. But Mr. Jaitley said the government wouldn’t initiate any new claims under the law. He said the Cairn case was “a legacy issue,” initiated before the government took office and would “be settled by judicial processes.”
India needs “stability and predictability” in taxation, he said.
In the coming year, Mr. Jaitley said, the government will move forward with measures designed to lighten the regulatory burden on companies and make it easier to do business in India. “Decisions must be quicker,” he said. “All kinds of permissions should be expedited.”
He also said he intends to step up sales of stakes in state-controlled companies and could consider “strategic sales,” or outright privatizations, in some cases.
When the BJP was last in power more than a decade ago, Mr. Jaitley helped sell stakes in major state-run companies, ranging from those that manufactured cars and ran hotels, despite opposition from within his own political coalition and others.
“My pace will depend on the requirements of India and the reality of Indian politics,” Mr. Jaitley said. “In a liberal, parliamentary democracy, there is a time and place for each reform.”
The finance minister also said the government would push ahead with efforts to amend a law passed by the previous left-leaning Congress party-led government that Mr. Modi’s administration argues made it too hard to acquire land to build factories and roads and other infrastructure.
The law required that 80% of landowners consent to the sale of any tract. It also said the land must be purchased at above-market prices and could only be acquired after a social-impact study was completed.
Mr. Modi’s government has used an executive order to ease those requirements temporarily. An effort to change the law stalled in Parliament this month.
“We have no option but to convince the opposition and farmers that the bill will lead to the economic development of India,” Mr. Jaitley said. “We’ll try to mobilize support.”
