India's finance minister's remarks on interest rates reverberate across globocorps, international financial institutions and the markets at large. In a candid on-the-record conversation with five Washington based journalists, Mr Arun Jaitley spoke in the US capital city on these rates, their rationale and consequent impact in the competitive sweet spot that the government has created for Destination India.
While the IMF annual meetings were beseiged by worries over Britain navigating a complicated world of post-Brexit trade and interest rates going into a black hole, India is routinely quoted as an “exception” in a world that is witnessing unprecedented backlash against free trade.
Shared here are questions asked specifically by Firstpost's Nikhila Natarajan and Mr Jaitley's detailed replies. Accompanying Mr. Jaitley in this conversation were FinMin's top econocrat Shaktikanta Das and Taranjit Singh Sandhu - India's Deputy Chief of Mission in the U.S.. The FM's remarks in Hindi have not been translated so as to retain accuracy and context.
Firstpost: The world is growing at 3%, India is at 7% plus….certainly a good time to be here…
Finance Minister: The world is moving slowly and nobody knows how long this phase will continue. There are no global specifics in a response. There are generalities that you must use all fiscal tools, all monetary policy tools, you must have structural reforms - so we have to learn to live in India in an environment where the world is going to move slowly and that world is not going to be very supportive of growth. The Indian positives broadly are that we have increased public investment, also because compared with the rest of the world, we are growing much faster, we have become the natural recipients of a higher level of FDI. Good monsoon, pay commission recommendations, reasonable growth rate, domestic demand including rural demand has picked up. Structural reforms in India in terms of direction and taking decisions are easier than ever before.
We are on the centrestage. India has become far more aspirational. Compared with the rest of the world, we are doing much better. Compared with our own yardstick, humein lagta hai ki this is not enough, we can do much more...which is not a bad thing. To be restless and impatient is a good sign. With the kind of investments and economic activity we have planned, global sluggishness won’t pull us down with it, unless some impossible events happen…
Higher investment in infrastructure will keep growth going. The challenges for us: In some sectors, private sector investment has picked up but that’s not the pattern. We can do better. Public sector banks need to become stronger and get out of the NPA scenario. If the world starts growing faster, then we can expect higher growth rates. But for India to maintain its present level of growth rate and depending on a good monsoon, to improve on it is possible. For the rest of the world, in this adverse environment, to do so well, they consider it (India) very impressive, so there’s a lot of buzz around India.
FP: GST must have figured in your meetings. Investors have been clamouring for it, what’s the messaging now from the Indian side?
FM: GST has a potential to add to the growth for several reasons. It’s a more efficient tax, it will make trade easier, it will make movement of goods much easier. For instance, the average time taken for sending goods from one part of the country to another is 48 hours - Din-on din woh chungi par khade rehte hain, state entry pe…woh sab eliminate hongi delays. There won’t be tax on tax. On the 18th, 19th and 20th, we are having a meeting of the council to settle the rates and for us the target is April 1 ( 2017). It’s a stiff target but we hope to meet it.
FP: Without naming Deutsche Bank or Donald Trump, a lot of the concerns at the IMF plenary swirled around the recent shocks - even Brexit. How does that (Brexit) affect India?
FM: Britain is looking at a world beyond EU. They want to negotiate much bigger trade with India. Rest of the FM’s answer is off record.
FP: Low interest rates have become the biggest macroeconomic debate in a generation, we continue to have decent interest rates in India…
FM: That is adding to our attractiveness. We still aren’t that low ( interest rates). Dual effect hota hai. At the FT events, Martin Wolf (chief economic commentator, Financial Times) was also there. His own analysis was this - why should anyone invest where the interest rates are at 0 or thereabouts. Yahaan to aapko inflation ke baawajood bhi interest mil raha hai…
FM: We were in Canada before coming here (to the US). We did not have the numbers on hand but the pension funds there told us they’ve put $12 billion into India in the last two years. That’s big money - Rs 80,000 crore coming from Canada just into India. When you have the IMF or World Bank releasing its reports or opening comments, they discuss data. India is always mentioned as an exception.
FP: Donald Trump’s rise proves there is pervasive anxiety about the effects of open economies. In case the US becomes more protectionist, could you give us a real world example of how it will affect Indian business?
FM responded to this question off the record.