Economy Turning Around Due to Relaxed FDI Norms: Jaitley
With GDP numbers showing an uptick, Finance Minister Arun Jaitley today said the economy is turning around, investor confidence is improving and inflation is moderating as a result of the recent government decisions to relax FDI norms and push manufacturing.
The manufacturing curve has turned, services sector is looking up and inflation has by and large moderated, he said, while addressing his first press conference to mark 100 days of the NDA government in office.
"In the first quarter (April-June), a 5.7 per cent growth rate is encouraging. With the long-term impact of all the new initiatives setting in, I am sure the impact in the coming quarters will be much larger," he said.
The GDP growth at 5.7 per cent in the first quarter of the current fiscal is highest in nearly two-and-half years.
Listing decisions taken in first three months in office, Jaitley said FDI restrictions in defence and railways have been eased, decision making hastened, special mechanism created to resolve tax dispute and steps taken to increase investment in manufacturing and infrastructure.
"The new government was clear about the direction in which it was to move. We wanted to expand economic activity, hasten decision making, easing doing business in country, open up significant sectors, expedite decision making, while maintaining the social sector expenditures in most areas," he added.
On future agenda, the Minister said the government would soon roll out disinvestment plan, push Goods and Services Tax (GST) and try to get the insurance bill through in the ensuing Winter Session of Parliament.
Observing that the Lok Sabha election results itself changed the mood, Jaitley said, it was "after 30 years you had a single party majority in Parliament and therefore decision making, including economic decision making, became easier."
Unlike the previous UPA government, he said there were no internal issues and all steps taken by the Finance Ministry had the support of the Prime Minister and his office.
The NDA government, Jaitley said, tried to address the grievance of the investors with regard to taxation issues and clarified that there would be no space for retrospective legislations on taxes.
"We created a new mechanism for an advance ruling (by making it) available even to domestic investors above a threshold. We created a special mechanism for resolution of tax disputes. The scope for discretions in transfer pricing was narrowed down," he said.
In order to boost economy, he said, the government further opened the defence and railways for foreign investment and eased the norms for real estate.
As regards raising FDI limit in insurance from 26 per cent to 49 per cent, he said, "we took a firm decision on insurance. I do hope, that the insurance amendments will be passed in the next session of Parliament."
The Minister hoped that the Select Committee, set up by Parliament to scrutinise the insurance bill, would soon start work. "I am hopeful of its passage in the next session. A significant amount of investment is just waiting in that sector to come in," he added.
Referring to initiatives taken by the government in the infrastructure, manufacturing, the SME sector and real estate sectors, he said, "I think the long term impact of all these decisions would gradually be felt. And if you look at the impact today, in investment mood there is sea change. The international investors are looking at us with great curiosity and I am sure we will see the impact of this."
Referring to the price situation, Jaitley said there has been a moderation in inflation and added that weak monsoon does pose a challenge.
He further said that through its pro-active approach the government was able to contain the prices of essential vegetables to a large extent which usually move up due to seasonal factors.
When asked whether he would like the RBI to reduce interest rate to boost growth, Jaitley said, "left to myself I would say very soon. I hope that those who decide are also listening."
In order to deal with the issue of rising subsidy bill, the Minister said that he asked the Expenditure Management Commission to submit some early recommendations.
"I will have discussions with the members of the Commission. They may submit some early recommendations on subsidy rationalisation. I have already flagged this issue during the Budget debates in Parliament," he said.
The government has set up an Expenditure Management Commission under former RBI Governor Bimal Jalan to suggest steps to contain subsidy.
On the roll out of the Goods and Services Tax (GST), Jaitley said, he would be discussing the issues concerning CST compensation and Constitutional amendment bill with Chief Ministers and state Finance Ministers individually.
"I am individually discussing with Chief Ministers and Finance Ministers which have raised some issues with regard to GST. An early development of constitutional framework is top in the government's agenda," he said.
Jaitley further said that he would be discussing the new land acquisition bill with the states and major political parties to find out that it could be made more flexible.
Jaitley also said he was "more confident" now of achieving the fiscal deficit target of 4.1 per cent of GDP in the current fiscal, even as the deficit in July end had crossed 61 per cent of Budget estimates.
Jaitley said that soon after the new government took over, he had outlined government's priorities which included containing inflation, restarting the growth cycle, rebuilding the investment cycle and keeping fiscal deficit at acceptable levels.
The country at that time was facing a significant challenge and the decision making had considerably slowed down, he said, adding "there was loss of investor confidence taking place, we were ceasing to be on investor agenda and the mood was significantly low. It is in this backdrop of this challenges a little over 3 months ago that we took over."
"All I can say is the govt is very clear whether it is social sector schemes, or other significant decisions, surely we will be moving in right direction. And I am optimistic that as more and more decisions in this direction comes, We will be able to help the economy to grow a little faster," he added.
Finance Secretary Arvind Mayaram also said that economy is on the path of recovery and recent data suggests there is a strong rebound in core sector data and revival in GDP growth.
On inflation, Mayaram said, it is a "matter of great concern". He added that Indian economy is on upward trajectory and the global rating agencies will take note of the development.
He also said that the disinvestment process will start in 2-3 months and the government will exceed the budgeted target of Rs 58,425 crore.
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