ARTHUR BROOKS: Good evening, ladies and gentlemen.

I’m Arthur Brooks, president of the American Enterprise Institute and I have the greatpleasure and honor of introducing our friend, India’s minister of finance and corporateaffairs as well as information and broadcasting, Arun Jaitley.

From the time he was a student leader in the 1970s and imprisoned for defending democracy,Mr.

Jaitley has had a distinguished career in politics and the law.

Before becoming India’sfinance minister in May of last year, he served as the leader of the BJP in the upper houseof parliament.

At AEI we have a deep interest in the important India- U.



We believe that it is one of the key relationships going forward in the world.

We have a deepcommitment to it in our work.

Our scholar, Sadanand Dhume stewards this work – spendsa lot of time in India, as I do, each year myself as a reflection of our commitment tothis.

It is for this reason that it is such an honorfor us to welcome the finance minister here today.

He’s going to address one of themost important issues facing Asia and the world: how to ensure that the world’s largestdemocracy lives up to its truly incredible economic potential.

So please join me in welcomingto the stage the finance minister of India, Arun Jaitley, and resident fellow leadingthe India-South Asia studies program here at AEI, Sadanand Dhume.


)SADANAND DHUME: Thank you, everybody, for coming here.

And I think it’s testimonyto the finance minister that we have got such a packed hall here on a Friday evening inJune.

I also wanted to welcome the delegation that is traveling along with the minister,our friends from the Federation of Indian Chambers of Commerce and Industry, who havekindly joined us.

And also I see two members of the minister’s family, so welcome toAEI.

And sir, why don’t you start?MINISTER ARUN JAITLEY: Thank you very much, Sadanand.

The subject you asked me to speakon is, how does India target the double-digit growth.

I’ve been in the U.


for the lastfew days and I’ve had a couple of engagements on somewhat similar subjects, but nothingas pointed as how do you cover this roadmap between our current 7 to 7.

5 percent growthrate and have that extra jump as far as the Indian economy is concerned.

We did, in fact, reach 9 percent a couple of years ago, and we sustained that 9 percentgrowth for almost three to four years.

And before I address the point, I think it maydo us a little bit of good to realize as to what went wrong that from that 9 percent growthrate in the last four or five years we’ve started declining downwards, till we reversedthe curve last year.

India traditionally got used to – in theage of controlled economy to a very, very modest rate of growth.

In fact, global economistswould virtually frown on the idea of India having a faster growth rate in view of themodel that we had adopted.

Probably in the first two decades after independence we hadvery few choices for the reason that the availability of capital in India and the availability ofentrepreneurship was somewhat limited.

But thereafter I thought there was a potential,but that potential because of some thinking on the part of the ruling groups didn’tquite take off.

And we had a series of decisions which were intended to keep the economy controlledand to grow at a very modest level.

In fact, out of sheer sarcasm our 2 percent, 2.

5 percentgrowth rates through that period used to be referred to as the Hindu rate of growth.

Andthat was the comment which was popularly made and that became an accepted economic phrase.

The ‘70s and the ‘80s were broadly wasted.

I think it was time to switch over, but probablythose in power thought otherwise till we were compelled upon by the crisis in the early‘90s in order to go in for a change.

And I think that change was much better.

If Irecollect my years as a young student or as an early professional, I remember in thatcontrolled economy how we grew.

Everything was short.

There was – transportation wasnot available.

School admissions were not available.

College – number of collegeswas small.

Food grain was inadequate.

If you wanted to buy a two-wheel vehicle, you hadto wait for 20 years.

If you wanted to get a telephone connection, the waiting list willbe 15 to 25 years.

That’s the economy which we grew up in.

And there were many people who had serious reservations when we switched over in 1991and I fully give credit to the then prime minister, Mr.

Narasimha Rao, who took a verybold decision because he belonged to a political party which otherwise had its great faithin the regulated economy.

And over the next 10, 15 years we hugely transformed.

In eachof the – when I first became a member of parliament, we used to be given an authorityto allocate certain largesse because of shortage.

So if somebody wanted a telephone connection,we had authority to give him a certain number of telephone connections every year, or cookinggas connections.

And suddenly within years of my becoming amember of parliament, I suddenly realized that these were only wasted pieces of paperbecause nobody came to us.

We switched over to a surplus – and that is the advantageIndia got.

We had governments of three different politicalcomplexions – we had the Congress government, a United Front government where the left partieswere members.

Then you had the NDA government by Mr.


But they kept that targeton.

And the pace may have differed, but they didn’t deviate from the roadmap.

I think the deviation started in 2004-2005.

And the deviation cost us quite a lot.

Inthe first few years, we continued to benefit still from the impetus of the past, but oncewe lost out on that impetus of the past because there was – the fresh set of reforms werenot going on, power structures were outside thegovernment.

I identified to myself as to what went wrong, and we – in this century tolose out on some valuable time.

I think the first thing that went wrong wasthe prime minister of the world’s largest democracy must be the natural leader of thatcountry, or at least the party in power.

If that is not so, then his authority to takedecisions – itself doesn’t exist.

So decisions would be taken outside the government, andoutside the government you had people with somewhat obsolete ideas who probably thoughtthat by just that kind of populism without concentrating on increased productivity, withoutconcentrating on growth rates, just by redistributing the existing resources you could do what happenedin 1971 and you could repeat it in 2004- 2005.

That probably was not to be.

The second thing that went wrong was you made a policy shift and some of the ideas werecertainly not conducive to the modern-day economy.

It was more leftwards.

You relisheddiscretions, whereas the rule of law, the power of the Indian judiciary, would neveraccept those discretions.

And therefore, investors who came and invested in India benefittedfrom some of those discretionary exercises of power which was abused, which was exercisedfor collateral reasons.

And the spiral effect was that you had investments which were confiscated,you had contracts which were cancelled, you had licenses which were cancelled, and thereforepeople became scared of investing in India.

As the leader of opposition, I recollect sometimein 2009 or 2010 getting up in parliament and saying that, forget people coming into India,the Indian industry’s thinking of investing elsewhere.

Our taxation rates were not conducive,our processes were becoming complicated, and we were moving backwards.

Our discretions,which were not the – which were not acceptable in this time, in this century, were beingabused.

Our taxation policies were becoming retrograde.

You had a situation where the government honestly thought that retrospective taxation on issuescould be accepted by the system.

You had an ultra-aggressive tax policy which didn’tbring us any revenue, but just scared people away from investing.

Infrastructure slowed down.

The banking system was 6 percent NPAs and another 7 percent stressedassets.

So the capacity of banks to lend was going away.

The public- private partnershipmodel for infrastructure creation itself had suffered a setback.

In fact, one of the mostsuccessful areas in infrastructure creation in India in the last one and a half decadeshas been the national highways.

And suddenly you had dozens of tenders being floated forhighways and not one person would respond because the institution of those who wouldbuild these highways itself were getting squeezed.

Banks were not lending, people were not comingup.

And I think it is at this stage that an aspirationalIndia was becoming increasingly angry and frustrated.

And this was evident in the lastfew years.

So that angry and aspirational India defied the basic conventional rulesof Indian politics.

They voted out everyone who wanted to be elected on the strength ofa family charisma.

So a large number of political parties, not necessarily the Congress partyitself, but even regional parties, which were controlled by politicalparties or families or individuals, they all got wiped out.

Nobody got more than five seatsin parliament.

It was zero to five BSP, JDU, Samajwadi Party, so they almost got wipedout.

Caste-based parties almost got wiped out.

And I therefore consider 2014 to be an important defining moment because the election in Indiandemocracy instead of being on traditional alliances, caste alliances, political alliances,family charismas, became an election substantially on governance issues.

And therefore, Indiangovernance, the management of Indian economy itself became a central stage issue.

And thatis the reason why the electorate gave a decisive verdict, and after 30 years voted almost asingle party majority in power, something which even in our best estimates we didn’tthought we could reach.

So that was a kind of a surprise for us also.

We thought we’dbe somewhat short of the majority figure on our own.

Along with our allies, we’ll crossthat majority figure.

But we got a majority figure on our own.

And with the alliance,we are much bigger than that.

And I think having said so as to what wentwrong, I think this new aspirational India expects early results.

It expects decisivegovernments.

And therefore, when the present government started off, governance, as alsomanagement of the economy, always remained a primary challenge before the government.

There were few low-hanging fruits – decisions which are not very difficult.

And therefore,those decisions were taken out – if these decisions had been taken five years and eightyears ago, probably there would have been a controversy.

But these were accepted inthe natural course by Indian public opinion.

For instance, our first decision was we mustopen out.

So we looked at sectors which were erstwhile closed to investment, also internationalinvestment, and one by one we started opening out.

Only one of them required a legislativeintervention, that’s insurance.

And for 10 years, we were going up and down withoutbeing able to decide.

And the others could be done easily by an executive action.

Defensecould be opened out, real estate could be opened out, investment in townships couldbe relaxed, medicinal equipment – medical equipment could be opened out.

And we decidedto open these out.

We had to put up this argument and thereforeat the very outset I put up this argument, when the first budget was presented that theseconventional slogans will now have to be rejected.

The choice between India is not between beingpro-business or pro- poor.

The two are interrelated, there’s no contradiction between the two.

So the government wants to expand businesses.

The government wants to enable businesses.

And the government wants that part of the increased revenue or enrichment of the governmentto be spent on infrastructure, spent on poverty alleviation schemes.

So the priorities havebeen defined.

We wanted to break off from the decision-makingwhich was taking place for corrupt or collateral motives.

So government discretions had tobe ended and wherever possible, an objective criteria had to be introduced.

So we lookedat areas, some of which required a legislative intervention, that henceforth, all naturalresources, coal, mineral, these were separate legislations, governmentshave no power to allocate.

These are sovereign resources, and therefore they would be allocatedby a market mechanism.

Everybody has to bid.

Now, normally, for last 10 years nothing hadbeen done, but in a period of four months, from when the Supreme Court canceled theseallotments, we had a policy in place.

We had a legislation in place.

In fact, to drivehome the point, we allowed those emergency legislative powers, the ordinances, to comein.

Some people criticized us that are you bypassing parliament? An ordinance doesn’tbypass parliament for the simple reason an ordinance has to be subsequently approvedby parliament.

Therefore, it gets ex post-facto ratification.

But the object behind the ordinancewas the government must show a sense of urgency and therefore must redefine that it wantsto move in this direction.

And I’m glad with regard to mineral, with regard to coal,with regard to spectrum, which created all the controversies, we had a huge success.

There were clean, transparent mechanisms and people got their allocations within a matterof weeks, and so that they could now concentrate on their businesses itself.

What do we dowith all this resource which was coming in? Because we got a lot of financial resource.

We had realized that the Indian federal model was too loaded in favor of the central government,and therefore the central governments conventionally allowed the regions of the states to alwayskeep coming to the center for discretionary grants or allotments.

Now, that age is over.

That’s over, therefore, every state or region now is entitled in terms of percentage toa certain amount from the central government.

I, as finance minister, have no discretionaryfunds available with me, so I can favor one region or the other.

And therefore, the entireincome, even out of these natural resources we said, will go back to the regions wherethose resources are to be found.

And earlier, the states didn’t get anything out of theseor got very petty little out of it.

And most of these states where coal or mineral wealthof India is located are the poorest regions of India because the tribals of India livethere.

And if there is one segment which could be identified as having benefited the leastout of the growth process it was the tribals.

So the entire proceeds over the next 30 yearsfrom all these natural resources now are being given to the states.

And because they’vebeen earned by a market mechanism, the states now get it.

I think there are two other important points.

Foreign direct investment, which in the ’90sand early part of the last century – last decade, we found there was some resistance,I think has been accepted as a very important additionality of resource in India.

And therefore,the resistance against them even by left groups is very marginal and by trade unions is – Ithink it’s just symbolic.

And therefore, it’s an important acceptability of thischanged scenario which has taken place.

We must now try to easen the processes ofdoing business in India.

How do we reduce the number of permissions? How do we makesure that environmental permissions are not held pending for years together, so that theymust be tiered? How do we ensure that the foreign investment proposals are either automaticor cleared at the earliest? Now, these are changes which have taken place.

Some legislations which had been enacted earlier, we are scanning through each one of them,so that the complications arising out of those legislations we can do away with.

So I would certainly say at this stage, when I look back the last 12 months, easening theprocesses, both at the center and the states – the states have also joined in becauseall states are now competing for that resource, and therefore they are in the process.

I don’tthink we’ve achieved goal – gone all hog – but that’s work in progress as far asthat agenda is concerned.

Our taxation structures.

I think the taxationstructures – some were obsolete and some were bringing India a bad name.

So we hadto take a very bold decision of saying the higher – the slab of corporate tax in Indiawill now go down to 25 percent.

And the object was that we must give to the general bodyof both domestic and international investors a competitive taxation rate because in ourneighborhood that’s what the average taxation rates are.

And therefore, if I’m going totax people 10 to 15 percent more than that, then obviously India loses its attractionas an investment destination.

So we are now in the process, from the comingdays onwards, every year for the next four years, we’ll be gradually bringing downthe direct taxation rates in India so as to make our rates competitive at least with theregion and better than most parts of the world on this side.

We’ve also offered variousattractive investments in terms of alternative investment funds.

But one of the major reformswe have now undertaken is the indirect taxation.

Every state has its own indirect taxes.

Theyhave a large number of them.

And therefore, transportation of goods, or services fromone state to another is a problem.

Building consensus between these states ishighly challenging.

And therefore, through the goods and services tax, I broadly succeededin building a consensus and I think the most important aspect of the goods and servicestax is that one-sixth of world’s population will be one market.

Therefore, for any investorin India, both domestic and international, he has a market at hand.

There’s a seamlesstransfer of goods and services which will take place.

The rates of taxation eventuallywill come down because a tax on tax itself will not be possible if the GST is implemented.

And I think the high point of the GST negotiations, in a short period, because for the last eight,nine years, it was eluding us, is that when I presented it in the Lok Sabha for approval,the Congress party decided to abstain.

For some reason, though they had supported thisidea of this bill at the earlier stages, they had introduced it.

So their abstinence wasfor political reasons.

But every other political party, including their allies, supported thislegislation.

Now, it’s important that coal, mineral,GST – all regional parties, which are otherwise opposed to us have supported each one of theselegislations because the GST will benefit the consuming states and most consuming statesare the ones which are less developed.

The coal and mineral resource will go to WestBengal.

It’ll go to Jharkhand.

It’ll go to Orissa.

It’ll go to partlyMadhya Pradesh, Chhattisgarh, a little bit Karnataka and Maharashtra.

Now, these arethe states which all have the tribal pockets.

And therefore, you are directly transferringyour resources as far as these are concerned.

There were huge number of decisions whichhave been pending.

I won’t go into all of them.

And just the pendency itself had conveyedan image of indecisiveness.

We could easily take the decision to fix up gas prices, linkedto the actual cost.

We were able to hugely cut down in our very first year somethingwhich was otherwise regarded as very sacrosanct and populist, the subsidies.

Petrol is todaylinked to the market price.

The declining prices have helped us.

Diesel is linked tothat.

We’ve been able to implement some of thevery radical programs about which we had doubts earlier on basis of the DBT.

(Direct benefitstransfer.

) And therefore, more and more subsidies, we’ve experimented, are now going directlyby way of cash transfer to the people, so the state support itself and the leakagesare getting out of that.

Now, all these have created a much – resulted in a much lesser pressureon the revenue itself.

For example, I’ve been mentioning that a reform which couldhave actually led to a lot of protests has been so smoothly done that in year ’15-’16,the current year, I’ll be spending almost 30 percent of what was spent two years agoon oil subsidies.

And that’s a huge savings of the exchequer.

And all this money is nowbeing diverted into creation of infrastructure.

We still have infrastructural challenges becausethe model itself had cracked, and therefore we’ve used the declining oil prices to partlypass the benefit on to the consumers, but kept a slice out of that and converted itinto a cess for infrastructure.

And therefore, the benefit of declining oil prices is nowgoing into highway construction, rural roads construction, and for the railways.

In fact, in these three sectors, which were starved of funds, this year, through variousinstruments, we’ve made such adequate funds available that if these three areas of infrastructurethere are able to spend those funds, we’ll actually see a movement in the direction ofwhat the title of this discussion today is.

We still have pending – a lot of pendingwork at hand.

The land bill is an important challenge.

It’s still before a joint committeeof both houses of parliament and I think we’ll have to fight it out and explain the benefitsof the land bill because it is intended for development of India’s rural areas.

It’sthe infrastructure creation in rural areas which will suffer if this bill is not passed.

The GST, I’m reasonably confident that we’ll be able to get a positive recommendation fromthe committee of the upper house and will go through.

We have several other reformsin the pipeline.

The bankruptcy code, reducing the kind of permissions required for settingup businesses in India, a public procurement law, a law on adjudication – expeditiousadjudication of disputes relating to big projects.

The social programs of the government, whetherit’s the Clean India campaign, it’s actually a healthcare program because it’s preventive health care – have become mass movements and therefore,are producing greater results.

Now, coming to the specifics of the subject,where do we stand today? Last year, with the final data out, these are provisional figures,India grew by 7.

3 percent in terms of GDP.

In terms of fiscal deficit, from an all-timehigher of 6 percent plus, we’ve brought it down to 4 percent.

I could have broughtit down lesser this year.

But I’ve consciously given a pause here because we want to takea lot more money and spend it on infrastructure.

Our current account deficit, last quarter,was 0.

2, which is quite an exciting figure for us.

It’ll be – the year’s averageis 1.


This year, we hope to try and do better than that.

Capital formation has improved.

Some trickling effect on these infrastructure areas has just about started.

Power sectorhas performed quite well and with the coal and the renewable energy programs that wehave – in fact, today, probably for the first time in history we have surplus power.

And therefore, if industry or more townships need that power, it’s available, providedthere are takers for it.

What is now the further roadmap to improveupon this? I cannot say as to what figure India’s growth would achieve, but I’mcertainly of the view that this 7.

5 percent that we are presently at is not India’soptimum potential.

We’ve reached this in the backdrop of a terrible monsoon last year,where you had a second round of crop destruction in the month of March, because there was avery bad hailstorm, which impacted on eight states.

You had a manufacturing sector whichwas almost crawling.

You had growth rates of sub-5 percent.

And when you take off fromthere, if you break up the Indian economy, our services have consistently been 9 to 10percent.

And therefore, that’s not an area which governments have much to worry about,unless governments acts obstructions it’s an area which is going to grow with the kindof huge manpower resource available in India and trained human minds, the quality of entrepreneurship,this sector is expanding.

And it has a very significant impact on our GDP.

Our manufacturing was almost flat at one time.

Last year, the figures indicate it’s around7.

1 percent.

And the first two months this year indicate, from the revenue figures, particularlyof indirect taxation, that there is a significant improvement over last year.

Now, with a lotmore money being invested in infrastructure and governments even conducting their fiscalpolicy in order to help the manufacturing sector, there is a significant growth possibleas far as this area is concerned.

And therefore, the “Make in India” program, plus concentrationon manufacturing, the impact of all these coal mine auctions, mineral auctions – becausethese are all works in progress where the impact can be seen the ground as to how itfunctions, I think in the coming years is going to up India’s manufacturing sectorsignificantly.

We’ve also come out with a huge programto help much smaller units.

You see, large industry in India creates a job, but the realjobs are created by those small and micro units.

We have almost 57 million of them,5.

77 crore.

And they create about 11 crore, that’s 110 million jobs in India.

And theseare the unfunded segments of the Indian economy.

So we’ve set up an agency called the MudraAgency, which will now transform into a bank, whose principal job will be to invest fundsin this sector, so that jobs are created in this sector.

And it adds, these are ancillaryunits, small units which come up.

These are also trading units which come up.

You then have agriculture, and I must confess that this is an area which is almost in neardistress situation.

In agriculture, you have amongst the land-owning people a lot of underemployment.

Agriculture is not remunerative enough.

And you have almost 300 million people who livein rural areas, who are the landless labor.

So one of the great challenges is going tobe how do you bring people out of the sector and create alternate jobs for them.

This is exactly what our amendments to the Land Law intend to do.

They promote irrigationprojects.

They promote rural electrification.

They promote rural roads.

They promote suburbancenters, suburban townships, low-cost housing, affordable housing.

And these are the areaswhich they promote.

And these areas are almost – land is made unavailable from them underthe 2013 law.

And that’s the amendment.

One more significant part of this amendmentis to allow industrial corridors to pass through rural areas.

Once these industrial corridorspass through rural areas, and generate employment for the youth there, that is one way, overthe next 10-20 years, of getting people out of these areas.

Hopefully, with a better monsoon this year – at least that’s the trend which hasdefied the predictions of the Meteorological Department so far, agriculture must do better.

That not only increases the agricultural growth rate, but it also has an impact on the restof the economy because the rural purchasing power goes up.

At the moment, we are facedwith a situation where traditional commodities, which agricultural economies purchase – forinstance, the car sales are up, the truck sales are up, but the two-wheelers and thetractors are down, which means last year’s distress in agriculture is impacting on them.

Now, it’ll have a spiral effect on other segments of the economy.

It’ll also improvethe growth rates as far as next section is concerned.

Two more factors, one relating to the goods and services tax.

It has a potential to putup people – economists said 2 percent, but I’ll be quite happy if it pushes up withhalf that figure the GDP of India.

And once we are able to bring that reform, and I amreasonably certain that this reform is now coming – it’s only a matter of time asto when it’s implemented – I think will have a positive impact.

So agriculture, manufacturing, infrastructure, investment in irrigation – now, this isimportant and I’ve learnt a lesson from at least three states in India – Gujarat,Madhya Pradesh, and Andhra Pradesh – which invested in irrigation and almost producedinstant results.

Madhya Pradesh created a river grid and the impact of that river gridis, in the last three years, its agriculture has grown by 18 percent, 20 percent, and 22percent.

That’s the impact irrigation projects are having in these areas.

Part of the Gujarat story in the rural areas was also because of the Narmada water andthe check dams, the small irrigation projects which were created in that state.

Similarly,in Andhra Pradesh, what YSR did was – his great political success – was through theirrigation programs that he implemented in the state.

Therefore, with revenues now moving up, that’s the area of investment which we are lookingat.

So besides these areas and the GST, two more last factors.

Hopefully, the global windswill improve, and therefore its impact on international trade, our own exports and ourtrade, it aids the GDP.

Today, we are reaching 7.


This year, even without these factors,we hope to touch about 8 percent.

And therefore, once the impact of all these changes and investmentsis felt, I think there could be a significant growth.

Inflation in India, I think, has been under control.

I would say to the – here to thecredit of the Central Bank that faced with a 11.

5 percent inflation situation, a fewyears ago, they’ve consistently kept it below 5 percent.

The wholesale index is almostin the negative.

And if inflation stays in the negative or if inflation stays at moderatelevels, one should logically expect the interest rates to go down.

And interest rates willdirectly impact on the efficiency of the Indian economy.

They’ll add – at present interest rates, manufacturing is a challenge.

And therefore,once interest rates goes down, the manufacturing sector gains.

One sector which has sufferedadversely and which is a great driver of Indian economy is real estate.

So an economy whichhas a plan to create 100 smart cities, we are almost at a stage where we are lookingfor each smart city for a joint venture partner.

We are on the take off stage.

Where suburbantownships, around major towns have been coming up and people, in large numbers, from theserural areas, more aspirational people have been migrating into those houses.

Today, becauseof high rates, thousands and thousands of those apartments have still not been purchased.

So hopefully as we keep inflation under control, I think these drivers of the economy are goingto pick up.

And therefore, once the cumulative effectof all these, plus some favorable global winds, I think the journey between 8 percent and10 percent is not an impossible journey.

It’s reasonably plausible.

And I think that iswhere India’s real potential is.

But the last point I’d like to mention that it’snot – it’s important that we reach that target, but it’s more important that wesustain it for a couple of years.

And it’s only if we are able to sustain it for a coupleof years that I think we’ll be able to have the direct benefits of growth as far as Indiais concerned, more jobs, better economy, and hopefully, over the next 10 years or so, depletethe poverty levels in the segments which are most impacted by it.

Thank you.


DHUME: Thank you for that.


) Thanks.

Thank you for that masterful overviewthat was both political and economic.

I’m going to start with a question which I thinkis particularly appropriate since we’re at the American Enterprise Institute, whichis a question of politics.

When this government was elected with the first single party majorityin 30 years, we saw many comparisons in the international press.

And one of the comparisons one came across quite often was the idea that this was goingto be India’s Reagan moment or Thatcher moment.

By that I don’t think anybody meantthat the Indian economy would be exactly like the American economy or the British economy.

But there was a sense that because there was so much political capital what could be doneand particularly done early was make painful decisions that other governments would nothave been able to do in order to gain long-term payoffs.

Some of the examples that come up would be, for instance, there’s been a lot of talkfor years about privatizing loss-making companies, the state owned bank situation has come up,urea subsidies, and so on.

So when you describe this path to 10 percent, it seems as thoughin an Indian context these gains can be made – unless I’m misinterpreting it – withoutthat kind of political pain.

How would you approach that?MR.

JAITLEY: I would first respond with a comment.

When you take the models as the Reaganmoment or the Thatcher moment related to India, now, privatization – I’m a great votaryof privatization.

I was the first minister for disinvestment in India for the few months,and the first unit in India was disinvested under my signatures.

But having said that,that itself may not address my problem of this 25 to 30 percent people below the povertyline and some of them in a distress situation.

Privatization program of the government orthe disinvestment program of the government will go on.

For instance, in my very firstyear, disinvestment was almost not visible because the government was doing so much.

But let me tell you on a statistic, even last year, even when there was very little evidenceof any divestment, I was able to divest in terms of money value the largest single thatIndia has done in any given year.

So without creating the controversies of 2000 to 2004,I had a much larger amount last year, without anybody having noticed it, from the divestmentprogram of the government.

And this year, I intend to improve that figure by almost2.

5 times, so it’ll go on.

There will be a number of units, which wehave shortlisted – the hotels, some loss-making units, some probably are incapable of evenbeing privatized – and therefore, we would look at strategic sales.

Therefore in thebudget, I have strategic disinvestment, I have mentioned it there itself.

But theseare only symbols.

This program will go on, but then the problems that India has are muchlarger.

I have to – we have to – balance higher growth rates along with a concern– no government in India ever could remain itself unconcerned with that 25-30 percent.

And therefore, you have to – I’ve been saying since yesterday – blend it with veryprudent politics.

So that prudent politics is not just give a handout to people or justdistribute some money during the election year, as the UPA has done because that’snot long-term impact on the economy.

We’ve already got a couple of social sector– social security schemes in play.

And they’ve had a resounding impact.

We could never thinkof India having an insurance cover for poor people, where 110 million buy policy in onemonth.

These are unprecedented figures and these are partly state supported.

Partly peoplepay for it themselves.

There are two others I’m working on.

So insurances, pensions,financial inclusions, health care for senior citizens,crop insurance for farmers, which have been very ineffective.

Now, these are all areas which we are working on and, therefore, when you have to addressthe problems of Indian economy, one, you have to target higher growth rates with a liberalizedpolicy, but you can’t lose sight of the social conscience of the decision- makers,so you’ll have to blend it with concern for those about whom you should be concerned.


DHUME: My next question is about something that you may not recall, but we had discussedthe last time you were in Washington, several years ago, as leader of the opposition, whichis the evolution of the BJP.

One of the things you spoke about in your comments was how,before 1991, there was a completely different mindset, and then in 1991 India embraced reform.

One of the things that’s interesting has been, at the same time, the evolution of economicthinking in your party.

In the ’90s, for instance, there were many people in the partywho were not great votaries of liberalization.

There was an association with organizationslike the Swadeshi Jagran Manch.

Today, you have a prime minister who was electedbased on the success of the Gujarat model.

We have a finance minister who stands forgrowth and productivity.

How has this – what has happened within your party and are thesechanges permanent in your belief? MR.

JAITLEY: I think there is no other alternativethat India has.

Gone are the days where India could go back to a regulated economy.

Goneare the days where you can put any form of reform process on the side without concentratingon improving upon efficiencies, growth, and just consider yourself redistributing resources.

So you’ll be repeating what happened from 2008 to 2014, and that’s a disastrous situation.

I think BJP became, over the last 25 odd years, where we repeatedly won election in statesas almost a natural party of governance, and therefore the experience of our states hashelped in the evolution of the whole process.

We were never a party of state control.

Soif you look at the Jana Sangh resolutions of the ’50s and the ’60s, we were fora more liberalized economy even during the days of regulation.

But then, as you got tounderstand and feel where the shoe pinches, this experience of the last 25 years, wherewe’ve been winning in various states of chief ministers emerging as leaders, I thinkdid us a lot of good.

The prime minister’s own experience in GujaratI think certainly added valuable experience to him and also our experiences in Rajasthan,Madhya Pradesh.

I think Madhya Pradesh is the other test case where we’ve transformeda whole state, which was otherwise considered a BIMARU or a sick state.


DHUME: I’m going to open it up.

I think that perhaps does Congresswoman Gabbard havea question to start with as I open it up? Could you just wait for the mic one moment?The mic is coming to you.


TULSI GABBARD: Thank you very much, Minister.

It’s great to welcome you back here to Washington and to hear your assessment on things.

SinceI visited you in India, last December, I heard great excitement there in India that reflecteda similar excitement here in the United States and seeing how we can build more bridges thatare mutually beneficial.

I think the interest from U.


businesses and investors in lookingtowards opportunity in India continues to grow.

I think as you outlined some of thechallenges previously though, those perceptions still exist about how to deal with the bureaucracyin a way that creates certainty as business plans are put in place and investments aremade.

And I’m wondering if you can speak about how the government of India is addressingthat perception and building confidence in investors to attract them to come in.


JAITLEY: The investors are very competent and clever people.


) So they don’tcome in only on persuasion.

They look at facts.

They look at the overall scenario.

And therefore,our job really is to create an environment in India, both in terms of an enabling environment,and also create a vision for the future, where an investor certainly feels that there isstability of regime, there is stability of policy, there’s a fair taxation, there’sa possibility of much higher profitability.

And therefore, in a scenario where the globaleconomy is at a very modest level, this is one economy which stands out, which is growing.

And probably the growth momentum will be maintained through policy.

And I think once you convey this impression and the impression can’t merely be communicated.

Every investor crosschecks on his own.

He has people in India.

He has the best advisorsitself.

And it’s at that stages that they decide to invest.

And I think it’s herethat we are getting – (audio break) – response.

At the same time, on basis of experiencesof the past, the investors have some legitimate concerns.

And therefore, it’s equally importantfor me to absorb those concerns.

And one of the concerns has been that investors don’tlike uncertainty.

And therefore, in terms of majority in governance and stability ofpolicy, we have to make sure that a regime of uncertainty is not created.


DHUME: Let me push you back on that.

One of the things you spoke about when you werein opposition was ending the idea of tax terrorism.

And it’s certainly true that your governmenthas done many things in that regard, including not appealing judgments that went againstVodafone and Shell, trying to simplify the code, and so on.

But one of the things thatcomes up over and over, and I think this came up yesterday also in New York, what peopleask is why not simply scrap what I think was your predecessor’s worst law, the RetroactiveTax.

Why not just say, we’re doing – we’re ending this.

It was a bad law.

We don’tthink this bad law should be on the books because that will create much more confidencethan simply saying we don’t like the law.


JAITLEY: That was a possible option.

Andwe examined various options.

My option was not my predecessor’s option, to say, well,my party doesn’t have a majority on its own, so I didn’t do it.

But along with yourallies, you had more seats than me.

You could have done it.

I do believe that the law perse was an unfair law.

And we haven’t changed that position.

How do weminimize the adverse impact of that law? So we held out an assurance, which we’ve livedup to, that the present government will not use taxation powers of parliament to enactretrospectively.

We haven’t done that.

Two, even under the old law, nothing freshwould be done.

Nothing fresh has happened.

So not a single notice has been issued, noris it likely to be issued.

So it remains merely that one or two companies have pending litigations,which were born much before this government came to power.

So I had, at this stage, havingvirtually neutralized the impact of the law for the future only to address the past, thefootprints which my predecessors left behind.

You could do it by just repealing the lawor you could do it by allowing the judicial tribunal to adjudicate upon it.

Now, by repealing the law, I would necessarily have to go to the legislature and tell them,here is a pending dispute, I want to legislate in order to decide this dispute against thegovernment of India.

The government felt that that may not be the best course open, consideringthe reality of Indian politics.

And therefore, while neutralizing it for the future, we waitfor a judicial tribunal, just as the Vodafone two or the Shell positions got upheld by acourt and we endorsed it by a cabinet decision to say, we accept these decisions.

We arenot going to appeal to it.

So one part of litigation relating to transfer pricing wejust put to an end.

We put a quietus to this.

So I’m looking for a methodology where Ican, without stirring a controversy, put a quietus to the whole issue.


DHUME: Questions? Why don’t I – gentleman over there in the corner, and could you pleaseidentify yourself and keep it as a question? Thank you.

Q: Nimai Mehta from American University.

One of the points you made was the desire to empowerthe states and there’s been a recent announcement that the Department of Industrial Policy andPromotion is going to start publishing the ease of doing business in these differentstates.

And that is an encouraging sign, but is there anything more than that that willeither pinch these states or reward them? MR.

JAITLEY: I don’t think the governmenthas to pinch or reward.

You see, I had added to this debate on Indian federalism by sayingit’s not merely cooperative federalism, it’s also competitive federalism.

And therefore,those who want to grow can’t be prevented by those who don’t want to grow.

And therefore,you can’t have one rule of thumb.

And therefore, states, one after the other, must also competewith each other in attracting investments, so easening processes of business is one ofthem.

In fact, my biggest argument among – against the critics of the Land Bill has been thatthe law itself entitles the state to decide whether it wants to acquire land for any ofthese new purposes or not.

And therefore, could West Bengal say, I don’t want to acquireland, but I won’t allow Gujarat to acquire land? (Laughter.

)So today, the position of the Congress Party and others who oppose this bill is that eventhose states where Congress Party is free to tell their chief ministers don’t acquireland under this new law.

But why should they prevent a progressive state from acquiringthat? And that is where I think competitive federalism in India has to be encouraged.

That is – and one impact of this is I went and supported the West Bengal government,not merely in unlocking some stalled projects because one fact I didn’t mention in thejourney to 10 percent is that if you are able to start – a lot of them have started, butmany of them are still be started.

But I also went and supported them at their investors’conference.

And I can assure you that the kinds of noises I heard there were not verydifferent from the kind of noises I heard at the Gujarat investors’ summit.

So thefact that West Bengal also has been compelled to speak the same language.

Last week, Kerala, which had a great distaste for privatizing ports and so on, the stategovernment decided to hand over a major port to a private sector company and asked them,please run this port for us as a competition to Colombo.

So the fact that Kerala and WestBengal are being compelled to do this I think is a good sign.


DHUME: Two places down, Swaminathan Aiyar.

Q: Hi, Swaminathan Aiyar, the Times of India.

If you look – I mean, since we’ve started off with the idea of Thatcher and Reagan,actually Thatcher did very little in her first term, wanted to get reelected, and then wentfor the big bang.

Is there a policy within the BJP that in this term you are going todo things in slow, incremental terms, and if you get reelected, then you go for a bigbang next time? (Laughter.

) I mean, it would be a defensible policy, I don’t know thatyou actually thought it out, but the way things are working, it seems to me perhaps you’regoing that direction.


JAITLEY: Swami, I’ve been followingevery word you write.


) And I am still trying to discover the meaning of bigbang.

Q: Shall I tell you?MR.

JAITLEY: I’ll be educated on this.


) Q: OK.

Privatize worst 10 banks, say thatyou abolish the railway board to have a railway corporation within the next five years – (BibekDebroy committee) – have a program for police, judicial reform where crooks are put in jailwithin two years, just three things.


) MR.

JAITLEY: You see, when you – let me– let me take your third point and the first point.

Crooks being put in jail for the rightreason, in fact, when I say that people with assets abroad must pay tax and if they don’tdo it, then penal action will follow, your colleagues in your paper say this is a draconianlaw.

Therefore, I’m aware of the inherent limitations of these kinds of suggestions.

Now, when you speak in terms of privatize all the banks –MR.

DHUME: Ten worst.


JAITLEY: – the 10 worst banks – infact, there’re only 26 of them which are in the public sector – we are bringing downthe equity of the government down to 52 percent or let’s say 51 percent.

I am open to thesuggestion of consolidation of some of the banks which are not performing because thatsuggestion has been coming.

But I still do feel that in promoting a large number of theseprojects, now stalled projects, it’s eventually to these banks that we’ve been going andasking them to help us to rebuild the stalled projects.

Are you aware of the fact that out of the 15.

5 crore bank accounts as a financial inclusion,private sector banks had a contribution of 23 lakhs? And therefore, there’s a lot ofdistance in these areas.

Funding highway programs, I can still depend on the state bank to doit when the program is stalled.

Not that the private sector is not doing it, the banksare performing extremely well.

And therefore, we’ve reached a happy situation.

I’d liketo see more private sector banks, more private sector banks doing well, more Internet banking,more foreign banks investing into India.

But at the same time, I am not willing toget locked in one controversy and say, because one reform – (audio break) – thereforethat becomes symbolic that the government is helpless.

I’d rather do those 300 things which are reasonably possible and I think for the nextone or two years, we have our agenda quite full.


DHUME: My colleague from AEI, Derek Scissors here in the front row.

Q: I have another big bang reform suggestion, but I’m more interested in your thoughtsabout it, labor market reform, which is obviously important to India.

And it’s actually, infact, crucially important to the rest of the world, given the size of the Indian labormarket.

The beginning of the government seemed to be that the labor market was a state issue,which is not an unreasonable position.

We’ve now seen some signs that the national governmentis more willing to push, in addition to the states, on labor market reform.

I’m wonderingif you could give us a sense of whether the strategy has shifted, whether it’s primarilyto be led by the states, or whether the national government has particular reforms in mindfor labor.


JAITLEY: Well, can I tell you? Labor marketreforms are required.

But then, there is a silent change also which has been taking placeas far as the labor market is concerned.

And therefore, labor as an obstruction to economicgrowth is not a very serious issue as far as India’s concerned.

Now, we have made a few changes in the last one year in some of the laws, not very bigones, but we were able to get some of the unions onboard.

There are sectors where thesize of the private sector is encouraged and growing.

For instance, take the banking sector.

Now, one of the most powerful sectors where the unions existed, and today, you have withInternet banking, with the ATMs, with the private sector banks, that entire impact issubstantially diluted.

And therefore, we’ve been encouraging as a processstates to come up with.

So Rajasthan was the first one which came up with it.

Maharashtrahas decided to come up with it.

Gujarat has decided to come up with it.

I remember during the earlier NDA government, Mr.

Chandrababu Naidu had been openly advocatingand the present prime minister as chief minister of Gujarat was advocating, allow us to doit.

So the moment a couple of states come up and start doing reforms, the center hasannounced that the states which do it they require ratification from the center.

We willratify each one of them.

Now, is that a faster course or is somethingbig bang and not easily implementable an easier course? After all, the government has theserious issues of political management also to address, and at the same time achieve theresults.

And that’s the course which we are adopting.

I foresee a situation where, one after the other, several states are going to come upwith the kind of legislations they require in their states and ask the center for permissionto go ahead with those changes.


DHUME: Someone right in the front, straightin the front from Paul Wolfowitz.

Q: Mr.

Minister, thank you for being heretoday.

It seems to me that one of the things that held back economic development duringthe Cold War was that many countries with – newly independent countries tended tothink of the Soviet Union as the sympathetic power, and therefore followed the Soviet model,which produced the kind of disaster you were describing where people have no telephonesor they have to wait 10 years for them.

I’m curious to know, in the present world, ifsome African finance minister would have come to you and say, should we be following a Chinesemodel or an Indian model, how would you respond to them?MR.

JAITLEY: Well, countries like the United States and India, in terms of important decision-makingon these issues, run into difficulties with elected houses.

And therefore, China doesn’thave that problem.

And not that I’m going to advocate that democracy is a liability– (laughter) – because of this, I think it’s a wonderful system.

And even if mydecision is delayed by a year or two, I’d rather live with democracy because these arethe values which we cherish.

But each country would have its own compulsions, would haveits own requirements.

For instance, I was asked this question yesterday,at one of the meetings in New York as to whether you’ll – between the American and theChinese model, which one will you prefer? And I said, I’d prefer the Indian modelfor my country because it’s a model which is closer to a market economy, but yet, becauseof poverty levels in India, there is a social conscience to that decision-making.

And therefore,that’s the requirement of India.

I don’t know the other country may have a similarrequirement.

I’m quite sure African countries will have a very similar situation to us.


DHUME: Can we go here to the third row? Tanvi Madan.

Q: Tanvi Madan from Brookings.

Minister, you’ve mentioned some of the things that could facilitatethe journey to 10 percent.

I wonder if you could mention a few key obstacles that youpotentially see that could either stall that or slow it down and any key regional or globalshocks that worry you most.


JAITLEY: You see, there will be occasionallydecisions elsewhere in the world.

So if something happens in Greece or the European Union orsomething happens with regard to monetary easing in the United States, it will impacton us.

But I think today we are far better prepared to face those consequences.

I thinkthe biggest challenge – because the biggest challenge for us is to keep our polity inplace to be able to take the decisions which will lead us to that roadmap.

If our politicsloses its track, then the challenges are far stiffer.


DHUME: I think we have time for one last question.

Teresita Schaffer.

Q: Teresita Schaffer from Brookings and McLarty Associates.

I’d like to go back, Mr.

Minister,to something you said earlier, when you were talking about making an enabling environmentfor economic growth in India.

And I believe you used the phrase “policy stability.

”To my ear, that involves at least two ingredients, one is stability as a legal framework andthe other is stability of how it’s administered.

And I wonder if you could address the secondof those things.

My impression is that the decision to apply India’s minimum tax toinstitutional investors was a substantial change in the way policy was being administered.

I wonder if your government has a view on how to achieve the right degree of stabilityin administration, along with fairness in administration.


JAITLEY: You see, conventionally, the view in India consistently was that the minimumalternative tax is not applicable to the foreign financial institutions.

And this was implementedfor a reasonably long period of time.

There was also a judicial opinion of the AdvanceRuling Authority which supported that.

And all assessments were made accordingly.

Now,notwithstanding that, somebody in the FII world went back to the Advance Ruling Authority,in the year 2012, and asked for a second opinion.

I do not know why it was required.

And thatauthority, headed by a Supreme Court judge, returned an adverse verdict, saying it isapplicable to you.

Now, whether this was wrong or right, I’mnot going into the merits of this.

This was contrary to what the conventional understandingwas.

Now, in 2012, the government of the day did nothing.

The FIIs also took it very lightlyand allowed that verdict to remain and occupy the field.

What does an assessing officerthen do at the expiry of three years? He’ll be hauled up for not following that verdict.

At this stage the FIIs represented to me – when this year’s budget was being presented,that this will create a problem.

So we responded by saying that with effect from April 1, 2015,we give a clarificatory amendment that it doesn’t apply.

And therefore the problemfor the future has been completely resolved.

Now, for the 2012 verdict, everybody got activein 2015 and now decided to mention it to the Supreme Court, please resolve this issue expeditiously.

The government joined the FIIs and said, yes, we want it to be resolved immediately.

Becauseit’s a judicial verdict, it has to be set aside by a judicial – or confirmed by ajudicial process.

The court has said now the summer vacations were coming.

On the July3, the court reopens and we’ll take it up for hearing immediately after that.

So thetax – we have not imposed any retrospective tax.

It’s a legacy issue for the presentgovernment, an unattended opinion of 2012, a lethargy in dealing with that, and consequenceswhich followed.

The legislature has corrected it for the future.

For the past, the disputehas to be resolved, and that can be resolved by a higher judicial authority reviewing thatverdict.

And that’s what’s going to happen.


DHUME: Before I ask you to have a roundof applause, I’d like to make one request, which is that the minister needs to leavefor another engagement, so if you could just stay in your seats after we’re done withthis, that would be great, for just two minutes.

Thank you.