India's Minister for Finance and Corporate Affairs, Arun Jaitley, just completed a packed tour of the UK during which Prime Minister Theresa May dropped in to a Downing Street meeting with his British counterpart, Chancellor Philip Hammond. 'India Investment Journal' caught up with the senior Indian Cabinet minister in London to explore his message for foreign investors, a possible free trade agreement (FTA) with post-Brexit Britain and the next phase of his dramatic reform agenda for the Indian economy.
Is post-Brexit UK a more, or less, attractive trading partner
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Jaitley with Philip Hammond[/caption]
There is a considerable amount of interest in India, particularly after Brexit. Correspondingly my discussions in the past have also indicated that both investors and the government here [Britain] are looking for expanding opportunities of trade with India.
In our discussions with the government of Britain, what we have understood is that they are keen to send a message that there will be no move towards any form of protectionism.
As for expanding the nature of economic relations between our two countries, that can take place after Article 50 is invoked, Brexit negotiations are complete and the UK is legally entitled to enter into other negotiations.
Any formal dialogue on an FTA [with the UK] is yet to begin. A formal dialogue can only commence once the exit from the EU is complete and that will mean an Article 50 notice, three years after that once formalities of the exit are complete.
Once we get into that negotiation process, it is obvious that every country has its own set of priorities. There is a time schedule before any action can commence but notwithstanding that there is a very strong opinion in both countries to expand trade to the extent possible and explore all possibilities.
This outreach [the UK visit] will help us in further strengthening the perception that globally is gaining ground that in the midst of a global slowdown, India remains one of the bright spots as far as potential destinations of investments are concerned.
Is the mobility of Indian professionals and students likely to impact any new trade deal with the UK
As far as the services sector is concerned, conventionally we have had a very proactive position and always stood for expansion as far as that sector is concerned. There is a considerable amount of concern in India, particularly in sectors like IT. We believe that trade helps in expanding economies.
While there is a debate on across the world, India remains one of the few countries which has opened up significantly and the so-called protectionist debate is least audible in India today. Indians are dominating various economies of the world and one of our major points of global discussions today is about the movement of human resource.
They [Britain] have to realise that when international students come here [Britain] they subsidise the educational costs here. We already have a reality where the quantum of students coming into the UK is declining and other jurisdictions are available. The UK also is part of that competitive market.
What is your message to foreign investors on the aftershocks of demonetisation on the Indian economy
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Jaitley with UK Foreign Secretary Boris Johnson (left) and International Trade Minister Liam Fox[/caption]
It is a subject which is of keen interest to everybody and in my meetings I have tried to explain what our object was. One of the principle objectives was to integrate the informal and shadow economy which exists outside the system into a more formal one and make India's economy more compliant.
Therefore, a movement towards digitisation of the economy is of significant help. Initial trends indicate that it has been an important step in that direction and investors in the UK have been keen and curious to know about our experiences of demonetisation and the extent of remonetisation that has taken place.
We have almost completed the demonetisation process and it has been the smoothest possible replacement of currency anywhere in the world.
Demonetisation was a move to change the Indian normal; a new normal had to be created. A predominantly cash economy has now to be substituted with a digital economy, which will bring more money into the banking system and lead to better revenue generation. I see India becoming a less-cash economy as a result.
The post-demonetisation regime is actually going to generate a far bigger GDP in the long run.
Can investors feel confident about GST passing through smoothly
Despite teething problems, hopefully GST will come up for implementation by July 1. The entire process has to be completed by September 15.
GST is the biggest tax reform since Independence and once implemented, it will be a far more efficient tax system. The quantum of taxation will go up and GST will make generation of cash more difficult.
The first requirement is the constitutional amendment, the law has been passed unanimously and by September 15
the curtain will be down. We have resolved most of the critical issues; legislations have been drafted.
Democracy does delay some decisions but at the end of day, a sense of responsibility does win. Most decisions are being taken unanimously and we will hopefully hit the July 1 date.
You plan to spend about $90 billion on building infrastructure in 2017-18; what role do you envisage for foreign companies in these projects
This year we have allocated the largest amount for infrastructure out of our resources. Over and above that infrastructure also involves a public-private partnership, so the projects executed in the PPP mode will also have private sector investment coming in.
Additionally, infrastructure is one area where long term lending also takes place. There are a large number of international funds etc which like to invest and want a reasonable level of return over a long period of time. I think because there is an infrastructure deficit in India, the potential for investors therefore to invest in infrastructure, from a point of view of long-term investments, also exists.
India has one of the largest infrastructure building programmes anywhere in the world.
What is your forecast for private sector investments and growth for this year
In the overall investment pattern in India, public investment has increased, FDI has increased, but private sector investment has not increased significantly.
One of the reasons for that is that the private sector during the boom period had expanded significantly and today with global demand a little low, they already have surplus capacity.
Therefore, they have to first utilise that surplus capacity before they can think in terms of additional investments.
An uptake in private sector investments will take place on the back of infrastructure investment, good agriculture growth this year, investment into the rural areas, ability to push up economic activity through reduction of tax as far as the smaller companies are concerned, the implementation of GST by the middle of the year, more resources with the banking sector and the ability of the banks to lend more. All this will spur growth and therefore, hopefully, revive private sector investment.
Where is the focus of the government's next phase of reforms
The global economy continues to face its own challenges. Any slow growth in the world impacts us also; but 7-8 per cent growth rate is the new Indian norm and if we get the support of the global economy, that figure has a scope of shooting up.
There is a huge mind-set change in India with much greater support for reform activity. India is a very important story to tell because in the midst of global uncertainties and the relative slowing down of the global economy, India has been able to carry on its reform programme fairly actively.
