Keynote Address by Finance Minister Mr. Arun Jaitley at...
Keynote Address by Finance Minister Mr. Arun Jaitley at Centre for Strategic and International Studies (CSIS) conference on April 15, 2015 - "U.S. - India Economic Engagement: Deepening the Commercial Partnership"

Keynote Address by Finance Minister Mr. Arun Jaitley at Centre for Strategic and International Studies (CSIS) conference on April 15, 2015 -

Remarks by the Honorable Arun Jaitley
Minister of Finance

Delivered at the Center for Strategic and International Studies, Washington DC
April 15, 2015

Mr. Richard Rossow, Dr. Romesh Wadhwani, Mr. Ninan.

I am extremely delighted to be here for this conference on U.S. India commercial ties. I have been asked to speak on India's demographic transition and the opportunities for partnership. But I do realize that the width of the subject really would go much beyond the normal parameters of a subject like demography.

India's working population, if I take the lower estimate of the working population, literally increases by millions every year. One estimate is that the population between 15 and 59 years was 58% of our population in 2001. And in 2021 it is expected to be about 64% of our population. So that broadly indicates that the percentage of our younger working hands in India is unusually large. And therefore, it is incumbent on any government or political system to meet the challenge of providing jobs to these people, skills to these people, provide good health and education so that they can be prepared for a much larger role in the years to come.

How do we foresee coping with this challenge in the coming years? I think the obvious answer is that India must target something close to double digit growth. India growing at 5%, 6% or even 7% is not an India that will be able to face up to this challenge. And I do believe that India has that potential to make 9 to 10 percent growth its new normal in the years to come. What is the roadmap? Once we achieve this higher level of sustained growth, creating jobs to match the ability of this population will still be challenging, but also reasonably possible.

Let's look at the roadmap which we have currently laid for ourselves. The first aspect of that program is that we are strengthening our state governments. We have seen an era where all our state governments literally had to run to the Centre for resources. Today it is a different ballgame altogether. In the past, we have been speaking and paying lip service to commonly used phrases in India like "Cooperative Federalism." But today we now see it in action. In the new partnership between the Centre and states, the revenue of the states has been hugely increased so that they can invest a lot more both in social infrastructure and physical infrastructure. They can invest a lot more in their poverty alleviation schemes. So each state, this year onward, is going to get 10 percent more revenue directly than it did in previous years. This has also led to another form of federalism in India, which we have now started referring to as "Competitive Federalism." States competing with each other. They are competing to woo investments, they are competing to provide a better infrastructure, they are competing to provide better universities, and so on. Now that is a process which is on.

The second emphasis which we have laid down is a significant increase in our investment in infrastructure. In this year's budget itself, my expenditure on infrastructure exceeded $12 billion. Now our main emphasis is to start rebuilding our national highways. It was a great program which was started while Mr. Vajpayee was in power. The last few years it slowed down, and slowed down significantly. Therefore a lot of public investment is now being put forward into railways, national highways, and rural roads. In fact, one of the advantages that we have had over the lowering of oil prices, that through a process of cess, we have converted a very significant part of the lowering of oil prices and passed it on to consumers. And a very significant part of the revenue that goes to the Centre is diverted to these three programs- rural roads, highways, and railway infrastructure.

Our emphasis on manufacturing, because that is where the jobs are going to be. As part of our economic roadmap, we have opened our doors to investment. Some of the sectors which had conventionally not been opened up have now been opened up. And by and large it has been a welcomed move in India. There are very few sectors now, an almost insignificant number, which still remain closed. Everything else has been opened up. Recently, in the last few months, we have taken the step of opening insurance in a big way, opening our defense sector in a big way, we have opened up railway infrastructure, and our real estate sector. These are some of the sectors on which we had been traditionally conservative, but now they have been opened up for investment.

Our having opened them up for investment, our next stage is, when both domestic and international investors come in, how we ease our systems so that investing in India itself becomes more attractive. There had been a legitimate complaint that the time between when an investor makes the decision to invest and the actual launch of his project, he has to run to dozens of offices with many challenges before him. Therefore, the time spent in this itself is may be a few years before he can actually start the process. This is something which I would say is still a work in progress. We are trying to narrow down that period, and therefore, this year I have set up a committee to look into the whole mechanism of how the whole institution of prior permissions can be replaced by a regulatory mechanism where it is far easier to start your business. Just comply with the guidelines which have been stated in that area. As far as our taxation laws are concerned, there had been conventionally a lot of legacy issues. It had been a fairly hostile system. In the last few months I have been speaking on it, and will do so at a function tomorrow so I will not elaborate on it at this moment in detail as to the steps we have taken to smoothen the system of taxation itself.

There are sectors which we have opened up in a big way. Our mining sector, our coal sector. And the auctions which we have held in these areas have been a huge success. The entire possibility of calling the government itself into question over such licenses has been completely eliminated. And hence, these sectors and the manufacturing activity which results from these sectors, coupled with our emphasis on infrastructure, all this, over the next few years, we will start seeing the result of all this activity on infrastructure and manufacturing. I have no doubt that from today's growth rate of around 8 percent growth, which we hope we are going to achieve this year, the ability to march forward to double digit growth over the next few years is going to be reasonably possible.

One of our very big challenges, and a contentious issue, has been the land law in India, particularly the one which was legislated in 2013. I have no hesitation in saying that the land law, if it remains in the present shape, is a hurdle to employment creation. In fact, I would like to point out one of the purposes of our changes to this law. One of the areas where we are trying to ease the acquisition process is what we are calling the creation of industrial corridors. Now unlike an industrial park or an industrial hub, an industrial corridor is a narrow hub which runs along a national highway, or runs along a railway track, where you have industries on both sides of the road. Now this is capable of providing employment to vast numbers of people in rural India. We currently have the Delhi Mumbai corridor which is being built. It is 1,200 kilometers. You have the Kolkata Amritsar corridor, the same distance, which is being built. So you will have townships, smart cities, industries running across this whole corridor.

Three hundred million people in India are landless. And when we talk in terms of using India's demography, the urban people are capable of finding a job for themselves. The landed peasantry is capable of finding work for itself. But it is those 300 million landless- which is almost close to a quarter of India's population - for whom the creation of the areas where they are staying- the rural areas- and it is these narrow corridors which are capable of providing big opportunity in these particular areas. And I see one of our biggest challenges in amending the land law. Getting this law right will provide a big advantage to growth if we can pass it in the coming days.

Our program to have 100 new smart cities in India. Now we have seen the first experiment. Last week I had an opportunity to launch what is strictly India's first smart city. It is also a Special Economic Zone, a financial sector hub in Gujarat in Gandhinagar. And the financial model on which it has been built is where land, and the right to build on that land- we call it the FSI or the FAR in India- itself is being used as a resource. And that resource entirely is the state's investment. No more revenue from the state exchequer has been required, that is the model on which it has been built, and it has been an excellent success. The response to this has been extremely good. It is something that is worth emulating.

Our skill development program has just started. And I think it is the success of this program itself which eventually can take us in the direction of generating a huge workforce with a large potential for employment itself. For the weaker sections of society in India, we have started a huge social security program, where every economically deprived person, who had no access to a bank, has been linked to a banking facility. Today we are in the process of cash transfer to his account, supported by a social security program itself, which the government has launched in this current budget, on which if there are some questions, and we have the opportunity, I will explain in detail. The Indo-U.S. partnership gradually is reaching a new height; there is a huge amount of cooperation and for each of these programs, we need a lot of investment, both domestic and international. For each if we can get the critical skills to support investments in education, infrastructure, and investment, creating jobs for this great workforce in India will be reasonably possible. Thank you.

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