New Delhi: The Indian economy, even critics admit, is seeing the stirrings of a revival. Finance minister Arun Jaitley concurs and believes that India is in the middle of its most important phase of economic reforms since 1991.

Ahead of his departure for the US to attend the annual spring meetings of the International Monetary Fund (IMF) and the World Bank in Washington, he granted an interview jointly to Mint and The Economic Times.

During the interaction, the minister spoke candidly on a range of issues, including possible downside risks to growth and how the government was keen to put in place an enabling environment to facilitate speedy disposal of some of the chronic bad loans that banks have inherited. Edited excerpts:

What will be the big message you will be delivering at the upcoming Fund-Bank meetings?

See, these are regular meetings held twice a year. So I have the bilateral with the United States, plus I have G-20, BRICS (Brazil, Russia, India, China, South Africa), IMF and World Bank.

Then I come to New York and I am addressing some investors and there is a United Nations meeting on narcotics, the UNGA (United Nations General Assembly special session).

The key meetings are the ones in Washington where you get an idea which way the global economy is heading.

So far, the meetings I have attended regularly give me the impression that even the developed world and the global financial agencies don’t have an idea how long the present phase is going to last.

Nobody predicted the decline of oil prices and people only have a speculation that it will settle around $40 to $50 (per barrel). You’ve now started hearing an economic argument that you never heard earlier that slightly higher prices may be good for global economy; earlier, the world was arguing to the contrary.

The global situation is gloomy and compared to the rest of the world, India stands out and we have become aspirational, so neither we nor the country is satisfied as to where we are, we want to get more.

The variables on which our future growth will depend are: One, how long the present oil price situation will remain. The present regime suits us, it’s gloomy for some but a boon for us.

Two, we keep our fingers crossed as to what sort of monsoon we will see.

Three, the monsoon will have an impact on domestic demand, which in turn will impact private sector.

Four, when will global headwinds really become tail winds?

To this, a fifth challenge has been added. So far, we have been able to transact with reasonable success so that we don’t allow our own reform success to slow down. So (we have to ensure) the whole process of step-after-step, session-after-session, is moving.

I think the immediate challenge now is going to be (passage of) bankruptcy (law) followed by GST (goods and services tax).

And I have a third one ready now, which is we are going to amend the Sarfaesi (The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) and the DRT (Debt Recovery Tribunal) laws in order to make recoveries faster and quicker. So they will have to come in tune with the bankruptcy law.

So, you will introduce the Sarfaesi amendment in the second half of this session?

I am intending to.

Are you seeing a recalibration of spending by state governments after the implementation of the recommendations of the 14th Finance Commission, which provided them more fiscal room?

You see, I think it’s a mixed bag. There is a greater tendency now towards social sector and infrastructure spending, both of which are perfectly acceptable. There is also a temptation in the name of welfare to go in for cheque distribution.

Earlier, you had said we will need two years to repair the state of the economy. Have you sort of completed that repair?

I think what we are seeing is a very important phase of structural reforms. Each one of these steps, whether it is direct tax, indirect tax, FDI (foreign direct investment) reforms, auctions rather than discretion—each one of them is a big-bang step.

When the history of reforms is being written, post ’91, in addition to what happened in ’91, this will go down as one of the most important phases.

The only area I had not anticipated two years ago was three things on the downside and one on the plus.

The three downsides are firstly that the global slowdown is so intensive.

Two, the adverse impact of sectoral stress on the banks, such that the ability of the banks to lend for growth would itself be impaired.

Three, the extent of the stress on the private sector, wherein the government itself has to shoulder both policy and economic activity.

On the favourable side, I think oil prices partly compensated and it improved the ability of the government to spend more.

On the banking side, there still is a lot of stress

There are two things which are taking place. We have to create both a political and an economic environment for the banks to have a healthy recovery. That can’t take place in an environment of suspicion. Business losses cause the twin balance sheet problem. You have to address the sector and reverse the cycles. That is more important.

Banks must have flexibility to settle. Settlements can’t be looked at with suspicion. Amending the Prevention of Corruption Act and creating an ombudsman mechanism, both will help.

This is what is already in the works—Prevention of Corruption Act. Ombudsman is already empowered.

When I say ombudsman, a body which will cushion the bank officials on the settlements.

Can you actually see the kind of reform that we are looking at in the public sector banks without a change in their ownership structure?

I don’t think India’s political opinion is ready for that. Why should I theoretically embark on an area for which the polity is not ready?

I think politics is ready for professionalizing their management, for having board-governed banks, for going in for consolidation, for more competition from the private sector, for more public sector banks to be run as private sector banks.

You had mentioned about IDBI in the speech as well. Is there some reluctance on moving forward?

No. Please wait for a few days.

Recently you mentioned that you are going to reach out to the Congress once again for GST.

My preference will be to do GST through consensus, because everyone including the Congress (state) governments have to implement it. And everybody must be prepared. You see the only sticking point now is (a revenue-neutral GST rate of) 18%. I have no difficulty in accepting the figure of 18%. It’s just that it should not be in the Constitution.

And if you keep gold out, as Mr (Arvind) Kejriwal (Delhi chief minister) and Mr Rahul Gandhi (Congress vice president) have suggested, there is no way you can maintain 18%. So it’s a strange thing, they impose an 18% condition and want to keep luxury items out, a principal item out of taxation so that 18% can never be achieved.

You won’t, sort of, go back on the jewellery taxation?

No, you see, this is the movement towards the GST. Gold will have to become a part of the GST. You can’t have gold not being taxed and its exemption be subsidized by taxing aam aadmi commodities.

Don’t forget it is the richest in India who consume 80% of the gold. It is the upper middle class and rich classes in India that consume 80% of India’s gold.

I have personally assured jewellers that there will be no harassment by the authorities and it will be only on the basis of self-certification.

How do you propose to build this consensus, with the Congress primarily?

You see, in principle, they accept the GST, and therefore I hope they’ll see the reasoning in voting for it.

So, you haven’t yet formally retouched base?

No, I keep talking to a lot of their leaders at various levels.

(Former prime minister) Manmohan Singh is an old friend of yours, so he would be a good point person?

We’ll certainly appeal to people like him who understand this issue much better.

The RBI (Reserve Bank of India) governor last week made a very interesting observation. He said that, basically, a lot of things have come together in the last 20-odd months, in a sense that India is now poised for a fresh take-off.

See, we have reformed, we are spending more, we are spending in the right direction and we are sticking to fiscal prudence. So, we are doing all the right things in... a global environment, which is not (otherwise) friendly.

So, assuming these things had happened in a friendlier environment, you would certainly be growing... much faster.

He was saying that this is the beginning of another phase of sustained economic growth. What would your thoughts be?

I think the economy is picking up. We can certainly see a booming service sector, we can see improvement in the manufacturing sector, a lot more activity in the mining sector, and I am sure if agriculture does well, it will leave an impact.

So, the monsoon would be critical.

I think it’s extremely important.

And all indications are that El Niño will not be strong this year.

For the first two years, the rain gods have not been very kind to us. I hope…

If they are not kind for another year, can the economy absorb the shock?

We have a strong economy. I think we can live with whichever situation is created. But we’ll be better off with a good monsoon.

Your recent budget was so strongly intended to target rural distress, are the results beginning to show?

I think these results slowly come out. I think irrigation is the first which will show an impact. Electrification is already showing impact. Swachh Bharat in schools and other places has shown a good impact. All our financial inclusion schemes have been a thunderous success.

Going back to what the RBI governor said, the government has interacted with rating agencies; are you getting an upgrade from the rating agencies?

I won’t be able to comment on that.

Transmission of interest rates doesn’t seem to be happening.

From 1 April, we have an alternative system in place. Even before the new policy was announced, some banks had already transmitted some, so I think greater transmission will now take place. Notwithstanding the health of the banks.

State Bank of India has brought it (interest rate) down to 9.4% on housing loans—loans are already in the single digits. And if we keep inflation under control, look at the way government securities’ rates have come down, which means pressure on all state governments and central government for fiscal deficit will be much less because we are now paying lower interest.

Recently, you cleared the 14th Finance Commission recommendations allowing some states which are fiscally prudent to borrow (more than their limit).

Yes, so they have more fiscal space to borrow for development.

Do you worry that states unable to keep up or adapt quickly will fall behind and there will a regional growth disparity?

I think, quite to the contrary, there will be incentive for states to reform... among the big states, the only ones that are (in) deficit are West Bengal and Kerala and Andhra Pradesh.

Andhra is only temporarily (in) deficit because of the division, Hyderabad going to Telangana—we will support Andhra Pradesh till it becomes surplus and it will in the next few years.

Therefore, Kerala and West Bengal will have to see whether the policies they have followed for the last four to five decades have cost them.

(UB Holdings chairman) Vijay Mallya didn’t appear before ED (Enforcement Directorate). Now what options are there?

The ED will decide. I think all these bodies, whether it is bankers or ED, they will decide strictly in accordance with the law; in case of ED, by the legal provisions, and banks will go by whatever is in the larger interest of the banking system.

NITI Aayog said that the strategic sale list would be ready and handed to DIPP (department of industrial policy and promotion) and to MoF (ministry of finance). Has it happened?

I am so far not aware of it and it has not been brought to my notice.

Do you think the non-economic issues that keep cropping up have taken away credit for reform measures from the government?

I think both are independent. I think the media is more obsessed with non-economic issues because they understand them better.

Panama has not really moved ahead on talks on TIEA (tax information exchange agreement) since 2013; is the government looking at blacklisting it like it did in the case of Cyprus?

We will strictly go by what the global attitude is and practices are going to be. But even though these are referred to as Panama Papers, money is parked in offshore locations other than Panama. It’s just that evidence of that money happened to be in Panama... some of those locations are reasonably helpful.

Will you use Aadhaar in income tax clean-up?

Let’s see how Aadhaar picks up. All doubts which some people have over Aadhaar should also be cleared, especially given that Aadhaar is no invasion of privacy—it’s a great national asset.

On Vodafone, the government has filed an SLP (special leave petition). Isn’t it confusing foreign investors?

Every Vodafone case is not a retrospective case, this one certainly is not.

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