Even before the general election ended in May, it was clear that if the Narendra Modi-led Bharatiya Janata Party formed the government, Arun Jaitley would head one of the important ministries on Raisina Hill, the area of Lutyen's Delhi that houses some of the most important government buildings.
But Jaitley's move to North Block, the part of the Hill housing the finance ministry, was not easy. Contesting his first Lok Sabha election, he lost the race in Amritsar to the Congress candidate by nearly one lakh votes, raising questions within the party about his eligibility to be granted a key ministry. Jaitley, who has also been given charge of the defence ministry, is a man with as many detractors as admirers in New Delhi and within his own party.
Often teased in Delhi circles as the only Congresswala in the BJP, Jaitley was seen by many as an obvious choice for the crucial portfolio of finance. He got the job because he has a shrewd strategic mind and knows how to work Delhi. In addition, the BJP needed someone who had the nerves to handle a ministry that was practically in the ICU despite valiant, though sometimes questionable, efforts by his predecessor and friend, the Congress’s P Chidambaram.
Both Prime Minister Narendra Modi and Jaitley had only a few days to present their first budget to a Parliament and nation that had been promised big-bang economic reforms. As Jaitley presented the Modi government’s first budget on July 12, many who had expected major reforms were left disappointed even though some praised it for pointing in the right direction.
As a member of the Federation of Indian Chambers of Commerce and Industry said, this was a “benefit of the doubt” budget because of the short period in which Jaitley and his team had to think things over. The real test will come in 2015.
Huge challenges
A change in government is not the only factor that drives ministerial reform. The bureaucracy also needs to endorse the new policies. In getting the bureaucracy on board, Jaitley’s team in North Block has faced plenty of challenges, such as the minister's inability to address the thorny issue of retrospective taxation.
Other things that kept Jaitley busy as soon as he took over were controlling inflation, India’s stance on subsidies at the WTO and making it easier to do business by removing regulatory hurdles. But the enormity of reforms needed to transform the Indian economy and pushing its growth rate to more than 6% require willpower and the stomach to take politically unpopular measures, especially in sectors such as power.
“There are three or four sectors where we just cannot continue doing business as usual,” said Pratap Bhanu Mehta, president of the New Delhi-based Centre for Policy Research. “In areas such as energy we are too dependent on imports and on carbon-intensive energy sources. If we are not on an alternative energy path soon, which means low carbon and technologically efficient [forms], we could be out of the development game in 15 to 20 years.”
It is the support system for business that requires key changes. Foreign industry remains bullish on India but has made its displeasure known over the slow progress on issues such as foreign direct investment, land acquisition and retrospective taxation.
On the domestic front, many industrialists have asked for a revitalised subsidy regime, one in which the government gives subsidies wherever required instead of using them as a populist measure to get votes. At the same time, as a vital component of the global economy, India could find it increasingly difficult to persist with its subsidy regime even if it makes sense on the domestic front.
Back to the drawing board
Globalisation and climate change will become central to India’s economic story. The Asian Developmental Bank concluded in a recent report that South Asian economies such as India could lose 1.8% of their GDP by 2050 and 8.8% of their GDP by the end of the century to climate change.
In a speech in Mumbai last month, Reserve Bank of India Governor Raghuram Rajan said that “much of what we need to do is already possible” but added that the methods in place in India’s economic systems need to be taken “back to the drawing board”. The new Finance Ministry is thus faced with having to rework fundamentals.
“In order to think about big-bang reforms, you [need but] currently don’t see that backup in form of bureaucratic and intellectual scaffolding,” said Mehta. “Sometimes, there is an advantage in taking things slowly so that you know what you’re doing, but the government needs to communicate its road maps effectively. It should say that one thing will take six months and another one year, and that is perfectly fine. But how will that happen? What is the timeline? That needs to be communicated effectively.”
Jaitley has his work cut out, but a more fundamental problem is that very soon he may find it too hard to juggle the Finance Ministry with the demanding defence portfolio he also holds.
To read all Kabir Taneja's pieces evaluating key ministries 100 days after the formation of the new government, click here.
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But Jaitley's move to North Block, the part of the Hill housing the finance ministry, was not easy. Contesting his first Lok Sabha election, he lost the race in Amritsar to the Congress candidate by nearly one lakh votes, raising questions within the party about his eligibility to be granted a key ministry. Jaitley, who has also been given charge of the defence ministry, is a man with as many detractors as admirers in New Delhi and within his own party.
Often teased in Delhi circles as the only Congresswala in the BJP, Jaitley was seen by many as an obvious choice for the crucial portfolio of finance. He got the job because he has a shrewd strategic mind and knows how to work Delhi. In addition, the BJP needed someone who had the nerves to handle a ministry that was practically in the ICU despite valiant, though sometimes questionable, efforts by his predecessor and friend, the Congress’s P Chidambaram.
Both Prime Minister Narendra Modi and Jaitley had only a few days to present their first budget to a Parliament and nation that had been promised big-bang economic reforms. As Jaitley presented the Modi government’s first budget on July 12, many who had expected major reforms were left disappointed even though some praised it for pointing in the right direction.
As a member of the Federation of Indian Chambers of Commerce and Industry said, this was a “benefit of the doubt” budget because of the short period in which Jaitley and his team had to think things over. The real test will come in 2015.
Huge challenges
A change in government is not the only factor that drives ministerial reform. The bureaucracy also needs to endorse the new policies. In getting the bureaucracy on board, Jaitley’s team in North Block has faced plenty of challenges, such as the minister's inability to address the thorny issue of retrospective taxation.
Other things that kept Jaitley busy as soon as he took over were controlling inflation, India’s stance on subsidies at the WTO and making it easier to do business by removing regulatory hurdles. But the enormity of reforms needed to transform the Indian economy and pushing its growth rate to more than 6% require willpower and the stomach to take politically unpopular measures, especially in sectors such as power.
“There are three or four sectors where we just cannot continue doing business as usual,” said Pratap Bhanu Mehta, president of the New Delhi-based Centre for Policy Research. “In areas such as energy we are too dependent on imports and on carbon-intensive energy sources. If we are not on an alternative energy path soon, which means low carbon and technologically efficient [forms], we could be out of the development game in 15 to 20 years.”
It is the support system for business that requires key changes. Foreign industry remains bullish on India but has made its displeasure known over the slow progress on issues such as foreign direct investment, land acquisition and retrospective taxation.
On the domestic front, many industrialists have asked for a revitalised subsidy regime, one in which the government gives subsidies wherever required instead of using them as a populist measure to get votes. At the same time, as a vital component of the global economy, India could find it increasingly difficult to persist with its subsidy regime even if it makes sense on the domestic front.
Back to the drawing board
Globalisation and climate change will become central to India’s economic story. The Asian Developmental Bank concluded in a recent report that South Asian economies such as India could lose 1.8% of their GDP by 2050 and 8.8% of their GDP by the end of the century to climate change.
In a speech in Mumbai last month, Reserve Bank of India Governor Raghuram Rajan said that “much of what we need to do is already possible” but added that the methods in place in India’s economic systems need to be taken “back to the drawing board”. The new Finance Ministry is thus faced with having to rework fundamentals.
“In order to think about big-bang reforms, you [need but] currently don’t see that backup in form of bureaucratic and intellectual scaffolding,” said Mehta. “Sometimes, there is an advantage in taking things slowly so that you know what you’re doing, but the government needs to communicate its road maps effectively. It should say that one thing will take six months and another one year, and that is perfectly fine. But how will that happen? What is the timeline? That needs to be communicated effectively.”
Jaitley has his work cut out, but a more fundamental problem is that very soon he may find it too hard to juggle the Finance Ministry with the demanding defence portfolio he also holds.
To read all Kabir Taneja's pieces evaluating key ministries 100 days after the formation of the new government, click here.