Arun Jaitley: Turning India's Economy Back to Growth

 

Campaign promises can come back to bite.  

India’s newly elected prime minister Narendra Modi made a huge one when he told the Indian people he’d turn around India’s stagnant economy. How’s he going to do it? Turn to his right-hand man, naturally: Arun Jaitley.

Jaitley’s emerged more powerful than any of India’s victorious politicians this spring … with the exception of one.

This one-time student activist and successful attorney holds not one but two of the government’s most powerful ministries: finance and defense. Jaitley is a politician. He brings no credentials as an economist or businessman. Instead, Modi’s relying on Jaitley’s widely-regarded intellectual firepower, oratorical skills and political finesse to bring together India’s multitude of fractious interests and push through badly needed reforms.

This modest budget showed off all the wily touches of a veteran of India’s political battles.

After a decade of high-flying economic growth that rivaled fellow developing world power China, the Indian economy has hit a rut in the past couple of years, largely thanks to stalled reforms, corruption and teeming bureaucratic inefficiencies.

The promise to fix that is what helped propel the right-leaning, Hindu nationalist Bharatiya Janata Party to a resounding victory at the polls in May. 

A 61-year-old New Delhi native, Jaitley was the man of the hour last week when he presented the Modi government’s inaugural budget — an indication of the massive economic challenges facing the new government and the tangible ways it intends to start tackling them.

Slowly. For all of the heady campaign talk, the document was a cold dose of reality.

India’s new Finance Minister and Defence Minister Arun Jaitley (2nd L)

SOURCE Corbis

Respected Indian columnist Ashok Malik wrote last week that Jaitley “has delivered an adequate budget without it being an exhilarating one.” There were no brash promises on GDP growth, which Indians hope will soon return to 7 or 8 percent, closer to the go-go growth of last decade. That will take three to four years, Jaitley’s budget predicted. He was more aggressive about bringing down the country’s budget deficit, pledging to reduce it from 4.5 percent to 4.1 percent of GDP. And while that doesn’t sound like a huge drop, analysts say it will be a stretch.  

But, as Malik observed, “In providing for a whole host of small and medium schemes and programmes for a variety of interest groups and states and regions, Mr Jaitley has given himself political cover and added to his political capital.”

In other words, this modest budget showed off all the wily touches of a veteran of India’s political battles. Jaitley has the scars to prove it.

The balding, bespectacled finance minister’s ties to the BJP go back to his university days, when he was an undergraduate and then law student at Delhi University. It was then that a young Jaitley, with a much fuller head of hair, emerged as a leader of the BJP’s student arm, Akhil Bharatiya Vidyarthi Parishad.

He will need all of his political savvy for the heated policy battles still to come.

Jaitley was president of the university’s student union amidst building political unrest in India in 1974. And when then-Prime Minister Indira Gandhi began a crackdown on dissent, known as “The Emergency,” he was a leading voice protesting. That resistance landed him in jail for 19 months. 

Jaitley later told one Indian newspaper it was the “best political education.”

He stayed away from politics after jail, focusing on a flourishing law practice that included arguing cases before the Supreme Court of India. He returned to active BJP involvement only in the 1990s, serving as a minister of law and justice and then of commerce and industry the last time the BJP controlled the Indian government a decade ago.

He will need all of his political savvy for the heated policy battles still to come.

Indian labourers stack bags at a local grain market in Amritsar, India, 10 July 2014. 

SOURCE Corbis

Jaitley is set to play a leading role in two pending reform efforts:

• To nationalize what’s called a “goods and services” tax. Currently states are allowed to tax the production of goods as they see fit, creating a patchwork tax regimes and inefficiencies for manufacturers and businesses.
  
• To reform India’s heavy system of government subsidies, which have long choked the country’s economy.
  

Adopting a national  goods and services tax, something successive governments have failed to push through, “would be like India signing a free trade agrement with itself,” says Richard Rossow, an expert on India and its economy at the Center for Strategic and International Studies.

The Modi government is already getting to work trying to finally push the reform over the finish line. And it’s Jaitley who’s charged with conducting negotiations with India’s 29 states — the majority of which are controlled by opposition parties.

One publication labeled him Modi’s “Chanakya,” a reference to the Indian royal adviser during the Maurya Empire.

Rossow, then director of operations at the U.S.-India Business Council, worked with Jaitley during the BJP’s last government, under Atal Bihari Vajpayee. Rossow believes Jaitley’s up to the task. In those days, “Jaitley seemed to me like the most likely candidate to become the BJP’s next prime minister” among the younger leaders. 

Instead it was Modi who began to emerge, in recent years, as the likeliest potential challenger to wrest control of national government from the Congress Party and its Gandhi dynasty.  

Much of the BJP’s eminence grise were slow to support Modi. Not Jaitley, who was one of the first to align with the one-time chief minister of Gujarat. It was a strategic decision that has paid off handsomely for him, in the same way Modi hopes Jaitley’s experience and political networks will pay dividends for his government.

One Indian publication even labeled him Modi’s “Chanakya,” a reference to the famous ancient Indian royal adviser during the Maurya Empire.

The one blot on Jaitley’s record: He’s never held elected office, losing his first contest, to India’s lower house of Parliament, in this spring’s election. 

The loss? Hasn’t hurt him.  

Read more: Arun Jaitley: Turning India's Economy Back to Growth | Rising Stars | OZY