SINGAPORE: India’s Finance Minister Arun Jaitley says India’s economic growth is picking up again. This comes after months of slowdown, in what was the world’s fastest growing major economy over the past three years.
Critics have blamed recent controversial government reforms like demonetisation and the imposition of a goods and services tax (GST) for the poor showing.
Prime Minister Narendra Modi’s shock decision last November to invalidate common-denomination banknotes took 86 per cent of currency out of circulation virtually overnight.
This meant that ordinary households did not have cash to buy goods and many workers in India’s cash-dependent economy could not be paid.
In an interview with Channel NewsAsia’s Conversation With, minister Jaitley asserted that with structural reforms taking place back to back, there was bound to be a lag period. “In the short run, for a quarter or two, it may disrupt the economic activities a little bit.”
But he was confident India’s economy had turned a corner. “I think the worst is behind us … if you see the last quarter, where the growth rate had actually dipped to 5.7 per cent – which is the lowest in recent few years – our services sector went up by 8.7 per cent … The fact that services sector was still at 8.7 per cent means people were still buying goods and commodities, which means the demonetisation impact was over. Remonetization had taken place. People had money in their hands to buy.”
The GST that was imposed in July this year also came under heavy fire by opposition leaders for being overly complex and placing the burden on small business owners and traders.
However, minister Jaitley hit back at critics, adding: “Anybody involved in economic management of the country has to think beyond their own nose and look beyond that as to what is the legacy and footprints you are going to leave behind.
“The GST was long overdue. And if we had delayed it in 2017, then perhaps in 2018 the elections would have been approaching and you would not have known what would happen thereafter.”
“GRADUAL PROCESS” OF RATIONALISATION
India’s new GST is hitting a particular section of its population hard – women.
Under the tax system, household appliances like washing machines and vacuum cleaners are taxed at the highest bracket of 28 per cent – the same level as luxury yachts.
Some economists argue that there is a direct link between owning a washing machine and women being able to go out to work.
However, the International Labour Organisation ranks India’s female labour participation rate at 121 out of 131 countries in 2013, one of the lowest in the world.
Prime Minister Modi has shaped himself as a champion for female empowerment – launching several initiatives to entice women into the workforce. His cabinet also includes more female ministers than any other government in Indian history.
When asked why household goods were taxed at such high rates, minister Jaitley explained that the previous tax rates on white goods were even higher, at 31 per cent, and that the government still needed tax revenues to keep the state running.
But he conceded that lowering the tax rates on household appliances like washing machines could be on the horizon.
He added: “That’s an area to look at in the future.”
Prime Minister Modi is also facing bellwether elections in his home state of Gujarat next month.
But anger on the ground over the twin blows of demonetisation and the goods and services tax has soured sentiments about the ruling Bharatiya Janata Party (BJP).
In July, textile traders in Gujarat took to the streets to protest the GST. Cloth markets in the state were also shuttered for three days as a strike against the new five per cent tax.
However, minister Jaitley defended these policies stoutly and remained optimistic of a win.
“I think we are placed quite comfortably and hopefully we will win the election … eventually the results will decide, but the indications are, and all the opinion polls are indicating that we are certainly not losing.”
Watch the full interview on Conversation With, Thursday, 8:30pm, SG/HK on Channel NewsAsia.