Moneycontrol
Oct 12, 2017 07:27 PM IST | Source: CNBC-TV18

Structural changes have had transient impact, but see growth resuming soon: FM Jaitley

There is a challenge and it would be incorrect for anybody to interpret a challenge to the economic situation as some kind of a crisis, he said.


An upward trajectory is being projected for growth from the current quarter and the figures will keep improving in the next few years, Finance Minister Arun Jaitley told CNBC TV-18.

In the context of the recent International Monetary Fund (IMF) projections and growth challenges going ahead for the Indian economy, Jaitley said, "In the larger management of an economy, you don't look at one quarter, you look at the pattern across a period".

Jaitley, who is on a week-long visit of the United States, said the economy is doing reasonably well, but can do much better. Important structural changes can have a transient impact, which they have had but all indications are that things are improving and will improve, he added.

He explained that after implementing GST, a major transformational change, you review the market situation daily and make the required changes.

In the previous meeting, two very important decisions were taken in relation to exporters, who are certainly entitled to quicker refunds, and one cannot block their capital. And secondly, one had to reduce the compliance burden on the small and medium scale, he added.

"To incentivise people to get into the GST net you had to offer an attractive composition scheme, that's what we have done," Jaitley said.

Over 134-140 commodities and services we brought down from 28 percent category to 18 or 12 percent. This is because, originally, they were taxed both excise, VAT and higher taxes. Thus, some goods were moved to the 28 percent category to bring revenue neutrality.

On India's fiscal deficit he said, "I inherited an unacceptable level of fiscal deficit and therefore, for the last three years, we have had a good glide path and we continue on a glide path".

However, he added the sharpness of the glide is flexible.

On the country's fiscal stimulus, Jaitley said the government will respond to the challenging situations.

He mentioned the status of various sectors in the economy. He said the manufacturing growth dipped in one quarter because of destocking. In the same quarter, the services sector went up.

Thereafter, all sectors indicate the growth has gone up. The automobile vehicles sales seem to have increased, the PMI for both manufacturing and services is moving up, there is an upward trend in the global growth figures, he added.

Everybody wants faster growth and as somebody in-charge of that department, we want faster growth. There is a challenge and it would be incorrect for anybody to interpret a challenge to the economic situation as some kind of a crisis, he said.

Below is the verbatim transcript of the interview.

Q: With the conclusion of the first meeting of the Prime Minister's Economic Advisory Council, it is official that there is a slowdown in India. Job creation remains a challenge. As a Finance Minister, how concerned are you about these projections that the International Monetary Fund (IMF) is making and the broader sentiment of the country?

A: Obviously, everybody wants faster growth and as somebody in charge of that department, we want faster growth. There is a challenge and it would be absolutely incorrect for anybody to interpret a challenge to the economic situation as some kind of a crisis. Obviously, the economy is doing reasonably well. We can do much better. Important structural changes can have a transient impact which they have had, but all indications are that things are improving and will improve.

In fact, you just referred to the IMF projection. Now, if you critically analyse the IMF predictions without going into the fact that they may be a fraction plus or a minus.

Q: The RBI has also reduced the gross value added (GVA) projections, so.

A: But at the same time, if you see from the current quarter, there is consistently an upward trajectory which is being projected. And if the upward trajectory takes you to a certain respectable level as far as growth figures are concerned and then, over the next few years it keeps on improving, in a larger management of an economy, you do not look at one quarter, you look at the pattern across the period.

Q: You expect the growth momentum to continue now?

A: That is what the IMF has said. That is what most other agencies are saying. And I think all the current indications and the potential of the Indian economy is that.

Q: You did mention about the structural reform. GST is one of the prominent reforms that this government has introduced. You have made certain changes to help the informal sector to help the exporters. Is this momentum likely to continue?

A: It is going to continue.

Q: Are rates going to be reduced?

A: I will not make a prediction as far as that is concerned. If you have seen, after implementing GST, it is such major transformational changes that you review the market situation day to day. Now, two very important decisions which we took in the last meeting are with regard to exporters because they are certainly entitled to quicker refunds, you cannot block their capital and secondly, you had to reduce the compliance burden on the small land the medium scale. To incentivise people to get into the GST net, you had to offer an attractive composition scheme. That is what we have done.

Secondly, when you ask this question about rates, we followed the principle of equivalence. The pre-existing taxes, we put them in the closest bracket. And then, suddenly you realise that the pre-existing situation was an absurd situation and already over 130-140 commodities and many services, we have brought them down from the 28 percent category to 18 or 12 because originally they were being taxed both excise and VAT at the highest rate.

Q: Some other items in the 28 percent category are going to be taken out?

A: Obviously that will have to be always balanced. I have indicated that there is a scope for improvement but that will have to be balanced with revenue neutrality. You cannot say that I have no money to spend for the government, but I am reducing the rates. Obviously as the revenues goes up, your flexibility in taking that decision increases.

Q: The fiscal deficit target, fiscal prudence is something that you are really committed to. Do you think you can continue with that trend or you might have to get a little lenient?

A: I inherited an unacceptable level of fiscal deficit and therefore, the last three years, we have had a very good glide path and we will continue on a glide path. Now, how sharp is the glide, there is a flexibility in that. But I think the direction of the discipline that we have maintained will continue and that discipline always is rewarded by the markets.

Q: My last question to you is about the fiscal stimulus. There is a lot of talk about that. Certain sections within the government also feel, specially at a time when you know that other central banks like the Fed, they are talking about withdrawing the stimulus, do you think in India, there is an opportunity to provide some kind of push?

A: I had used a word when I was asked by the media. I said there are challenging situations and we will respond to them. Now your fraternity translated the word response into a stimulus, I did not.

Q: If not a stimulus then what? What is the government thinking?

A: According to me, you have to analyse the problem. The problem is that because of a destocking, you had manufacturing growth dip in one quarter. You had, on the same quarter, the service sector go up. Thereafter, all indications indicate the core sector growth is gone up. The automobiles, vehicles sale seems to have increased, the Purchasing Managers' Index (PMI) for both manufacturing and services is moving up, there is an upward trend in the global growth figures. Now these are all the trends which have been coming thereafter and therefore, whenever you have challenges in a quarter or so because of important structural changes, I think it would be very short sighted to interpret those challenges.

Q: But the private sector is sitting on a lot of underutilised capacity.

A: Therefore, as the demand picks up, those capacities will also get utilised. They will not get utilised in a vacuum.

Q: So there is nothing specific that the government is going to do?

A: I have not said that. We have a game plan in mind. We will implement it as soon as we are in a position to announce whatever.
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