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Speech of Mr Arun Jaitley, Finance Minister at an event hosted by SIBC-FICCI in New York on June 18, 2015

  1. Thank you very much Ajay for your invitation to speak in this gathering of some very distinguished colleagues of yours and some friends from India, all of whom have a very deep interest in India. All of you have been, besides being investors, been keen students of analyzing what goes on in India. I do believe that the Governments, if they have a determination, have a capacity to deliver within the Indian system.
  2. Let me start of by giving some of my very pleasant and unexpected experiences of the last one-year. Several decisions on the economic front can be taken by the cabinet and can be approved by parliament but it takes time to implement them. A phrase that I frequently hear is what is the impact of a large number of reforms measures on the ground. One of the figures that we analyzed at the very outset when we took over, that in a diverse society like India, the banking system had a reach of up to only 58 percent of India's population, so 48 percent of India was completely outside the reach of the banking system. So you're talking about 400 to 500 million people who didn't have access to a banking system. Any kind of reforms, if we take all the steps Ajay and Jyotsna have mentioned, would be completely out of sync with the way their lifestyles had functioned.
  3. We started a scheme for financial inclusion; I had the opportunity in two or three states to go right up to the villages to see how this scheme was being implemented, besides the regular brick and mortar branches of banks, every bank for a given region had employed a lot of younger people. These were called business correspondents who were casually employed by the banks and were paid for every account that they now opened up. Each one of them on his laptop or computer would have the name of every resident in the village or cluster of villages. Each one of them approached every person and the way we launched the campaign at the end of the first day we were surprisingly informed that they reached ten million people in one day. And in the course of the three to four months that this campaign lasted, they had managed to bring within the banking access as many as 155 million people. When we started taking reports of state after state several districts came up and said, "We have a 100 percent inclusion". This is the capacity of the machinery within the state, so you had Member's of Parliament, Chief Minister's, Member's of Legislative Assembly's, from the chief secretary to the collectors in every district of the country, to the staff of banks, mostly the public sector undertaking banks, some of whom were never praised for their efficiency otherwise. And this turned into a campaign as far as the country was considered. Now was this a one off thing that India was capable of delivering? We came to the next stages that how do we now start putting money in these accounts because almost 75 percent of them had no money in them, they were zero balance accounts. And within about three months we now find, that almost most of the state support, or subsidies as we call them in India, one by one we've started switching over to these accounts.
  4. The newspaper reports, I read on the net, indicate that the Prime Minister himself took a meeting yesterday, so the support system as far as weaker sections were concerned, old age was concerned, below poverty line people were concerned, widows pension, scholarship to students from the weaker section, and finally the cooking gas subsidy; we now find that 125 million people, within the next three months, have started getting money in those accounts by way of state support, and a huge amount of that leakages came down. The impact of all this can now be translated to government programs one by one. We started some social security programs with regard to insurance, it was launched on the 9th of May and on the 13th of June, to my surprise I found that the same machinery from the insurance companies and the banks had gone down and had gotten about a 110 million people insured. So the insurance depth of India, which is at only about 20%, within less than five weeks, reached a 110 million amongst the poorest of Indian people. And this probably now shows the capacity and determination of the state if it decides to act to the extent of which it can go.
  5. I was telling some colleagues at a meeting this morning that we've had years and years where every discussion on Indian economy used to be, how do we rationalize subsides? In the last 13 to 14 months, in the oil sector which was highly subsidized, the total amount which is going to be spent this year is almost 1/3rd of what was spent two years ago, and half of what was spent last year, in terms of subsidies. Therefore people in India have realized, there hasn't been a protest or demonstration. Now, the process of allocation, and of course reducing oil prices have helped in that case, and we've been able to implement what was erstwhile regarded as one of the most difficult reforms in India to implement. From oil sector we probably have the opportunity to experiment this as far as other areas and sectors are concerned. But then I've seen issues evolve, when Ajay was speaking of the last one year, when the issues of a year or 14 months ago were entirely different. There was a concern on will we have political instability or will we have a stable government? What if you have a coalition Government, the Government would not be able to deliver; the Government would come under the pressures of a coalition itself. I think suddenly we found that all those concerns disappeared. On the contrary the expectations are still there, and the expectations keep evolving and changing.
  6. I've been telling people that I don't take stray comments which come as points of criticism because India must, and all well wishers of India must continue to be concerned because our capacity to achieve is much higher than what we are reaching at the moment and therefore all of us including myself and the Prime Minister, we must all remain concerned about the pace of progress; it's only then that we'll be in a position to hasten the pace itself. Yes you are right Ajaywhen you mentioned taxation concerns, taxation concerns because my own experience has been that levy of taxes that are unreasonable, eventually is never able to deliver. Each one of the cases that you probably had in mind when you made that comment are cases typically which didn't bring any revenue to the earlier government or to me, they only brought Indian taxation a bad name. And so the lesson of the story is that not only must taxes be reasonable but we also have to bring in an element of reasonableness among those who implement the tax policy in India. And that is one reason that India has now realized that it pays more to be more reasonable in taxation. I've often said this, when I was reading this years Budget, there were many occasions where people thumped in approval; but there was only once during the reading, where I looked up in surprise and a section of the House mostly from my political opponents tried to shout me out and that is when I said, "our direct taxes, the corporate tax must come down from 30 to 25 percent and that is what I intend on doing for the rest of the term of this government". Why are you showing them a favor? This is the mindset, precisely the mindset that created the taxation problems of the past. So I had to show them the recommendations, which their Finance Minister had presented before the parliament and said "the ideal situation would be in the direct tax code that the corporate tax comes down to 25 percent". So I said it was your proposal but of course you did not have the political capacity to implement it. And in the course of the discussion when I explained it to them, I was pleasantly surprised that most of India's parliament was willing to buy that argument.
  7. That unless I make my taxes reasonable and they are competitive with at least all other neighboring centers of investment, the investors are not going to look at me if they have to pay 10 to 15 percent more, if they have to invest in India, in terms of taxation, and therefore today I'm competing with that investment. So we are in the process of implementing one of the most significant direct tax reforms. You've mentioned GST, GST eluded us all these years because of lack of consensus. Gone are the days when the Central Government could come up and say that this is my mandate, and this is my GST, and everybody in the states' must follow. State after state were concerned with the fact that they are going to surrender their own taxation authority and autonomy to a new body the GST council which is going to be created. The center is also going to surrender it to them. So both the center and the States get together and implement the indirect tax policy, and unless there is consensus between the two, that is how we've structured the GST council, it will not be possible for them to implement it. And therefore I had to strike a deal with the States, some people have said that one of the suggestions may not be in consonance with the destination tax principle, probably there is substance in that argument. And therefore we've kept some element of flexibility in the language of the law and we'll see how the revenues work out when we start implementing it. But we've come as close to a position that when the congress party decided to abstain from the voting, every other political party including every ally of the Congress party supported the Government and the GST bill was almost passed with a much larger consensus in the Lower House. I'm given to understand that the committee meetings in the Upper House are also going on very well. How does one settle all these cases of extra aggressive taxation which are pending in one forum or the other and the Government has adopted a clear policy, as far as the future is concerned, through legislation we've clarified that there is no MAT on financial institutions, foreign credential institutions. We've lived up to our statement in the past 13 months that the present Government will neither legislate retrospectively in tax matters nor will it encourage any notices on basis of the erstwhile retrospective legislations. And consequent to this policy each one of the legacy issues which prevail, or which were born really during the life of the other Government, one after the other were also adopting a far and reasonable approach, to ensure that in the forums that they are pending the are adjudicated and that one by one these issues are put to sleep. A lot of transfer pricing issues have already been resolved and I'm quite certain that in accordance with the standards of fairness most others would also be resolved.
  8. I do concede to what Ajay mentioned with regard to the ease of doing business. You can't be one of the most complicated destinations for investment and then continually say that "I've opened my doors very wide, people must come and invest". People don't like to invest in those jurisdictions, policies of which are not fair, where decisions are motivated by corrupt considerations, where the result of government corruptions in past investments have been confiscated literally, people don't like to invest where they have to run to multiple authorities for permissions, where the time taken between the decision to invest and the actual implementation is long, and is literally going to be months and years. People may not invest in destinations where single permissions either by the environmental authority or by the FIPB or by the state government is pending for years all together before it can be cleared. And therefore from the top most office of the country a clear signal has to go to all authorities that our processes of decision-making will be fair and transparent, and I'm glad that is what we have introduced through legislation and through policy in the last few months.
  9. I don't think we've been able to eliminate the need for all permissions probably we may not be able to do that, but gradually it is being reduced, and therefore we have set into motion a process where every state government is going around and competing with each other, asking people to set up projects in their state. There is hardly a state, for instance, a state like Kerala, where traditionally you didn't see much industry, now the state has last week gone and started awarding contracts for private sector ports because they want port led development in the state which is possible. The investor's conference, which West Bengal organized earlier this year, the tenor of the speeches that I heard, was radically not different to those I heard at the big investors conference, which is held in Gujarat. So the very fact that this environment also prevailed in States like West Bengal and Kerala, that this is the kind of environment we need that shows the changing mindset in India. The third point you mentioned in relation to the IPR, I think here without wanting to join an issue, I think there is a need to strictly analyze laws as they've been enacted in India. Now they've been extremely globally competitive, they're compatible, in a large number of these cases, in fact our recognition and respect of intellectual property of other countries has been far higher. We were amongst the first in the world to recognize trans border reputations; I've not seen the same reciprocity to leading Indian brands, I don't know whether Rajan Mittal's brand has been recognized in the United States. They lost the case because they couldn't protect Airtel as a brand here, because they felt Airtel didn't have a trans-border reputation. That would not happen to any American brand as far as India is concerned. We were the first in the last 22 to 25 years ago when we started valuing international brands and intellectual property. The problem is rarely with regard to the point of view of certain pharmaceutical companies, and I would like you to seriously analyze whether the provisions of Indian law; where healthcare, public health, and research and innovation have to be balanced, the Indian law makes a reasonable reading or not. In fact that model has now been accepted by a large number of countries across the world where it seems to be working fairly well in most countries and therefore that is an area that not only impacts business but also on human health. So therefore the Indian law strikes a fair balance as far as the two considerations are concerned. The last one year has seen the initiation of a roadmap I would say where we open out, we try to ease in processes, we try and make processes very simpler, where the direction of the movement is absolutely clear. I think each step, I frequently hear phrases like Bing Bang reforms and my effort in the last 13 months to ask for precise suggestions as to what those big -bang reforms are have failed to invite or attract any suggestions with regard to that effect. So every person who uses the term, I call him up and ask him for five suggestions, and he promises to get back to me, and they haven't got back.
  10. A series of what has happened, and if you total up all these decisions, which is taken week after week as far as the Government is concerned, the sum total of this is that there is a building consensus and what's more important is that we've had our proposals run into problems which democracies do have but at the end of the day each one of them has been endorsed by parliament, have produced better results, and despite discussions and initial hiccups, almost each one of them eventually gets endorsed by the political system. I think that's the resilience and strength as far as India is concerned. Our figures, I've been always saying, look much better but these are still not figures that completely satisfy all of us and I'm quite sure the best in the Indian economy is yet to come. We are on a fairly firm road map where we are trying to improve upon our growth rates, improve upon the spread of economic development in India and then convince the weaker sections of the society also that it is only growth and development which will not only penetrate downwards but which will also bring adequate money in the pocket of the Government so the Government can spend as far as poor people are concerned. Now these are no small schemes that I referred to, we do intend to continue the social security program of the Government, some of the schemes have been implemented there are others in the pipeline which are being planned. And I think this balanced approach between growth and the schemes that help the weaker sections of society is going to be an Indian roadmap in the coming months and years. I'm quite certain that India would stand out with higher growth rates but there's a realization, and that's the unrest in India, that's unrest within the Government, and unrest within me and I'm sure within the Prime Minister also; that we want to realize the fuller potential as far as India is concerned and I'm quite certain we are on the right road map as well. Thank you very much for this opportunity and I'm sure our discussion would lead to some more clarification.
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