September 3, 2018

Speaking at Interactive Session on Reforming India through Video Conferencing, in New Delhi

Janmashtami celebrations – which I had not realised when we fixed up this programme. At the outset, I hope all of you in Mumbai enjoy the Dahi Handi festival in Mumbai. I am missing it this time around. But I do hope you will get some time to go around and enjoy the Dahi Handis being taken down by the enthusiasts from all over Mumbai. And, a very happy Janmashtami to all the participants of the Elara Conference.

You have chosen a very appropriate name, Ashwamedh, I believe. And it’s interesting that Ashwamedh comes from the rituals of ancient India when territories used to be conquered to show clout. The world has changed. I think the economy today determines the clout of a nation, and different countries in the world are today competing with each other to better their economic prospects, economic future and that will be the defining yardstick by which one will see the success or failures of states or countries and governments that run these countries.

Of course, all the statistics are very well known to all the participants of the Elara Conference on reforming India – growth statistics, the quality of growth statistics. There has been a raging debate whether UPA growth numbers, albeit little higher side in some of the years, were better than the growth that the NDA has presented before the nation. To my mind, there is hardly any debate about that and I am one who has been studying the growth model of different countries for several years now. Very clearly, a growth which is on the back of extremely high fiscal deficit and on the back of indiscriminate lending, creating capacities which more often than not never had the demand in the first place certainly do not augur well for a long-term, sustainable growth model.

I personally believe the focused effort to improve the… almost all the microeconomic fundamentals of the Indian economy that Prime Minister Modi and our team has been working on for the last 4 years. The fact that on every parameter, be it fiscal deficit, be it the current account deficit, be it revenue deficit, be it our inflation numbers, be it the fact that over the four-year period interest rates have been down, a short-term uptick in the last two quarters. The jury is out whether it was really called for on a short-term number, or one should have waited to see what the sustainable inflation number would have been. The fact that foreign exchange reserves have been very robust, the fact that the rupee – and this may surprise some of you who believe that the rupee has depreciated in the last three months very rapidly – but I believe the rupee has probably been the most stable in this four years of the Modi government – may not be in terms of the timing, but clearly from the fact that during these 5 years, from 2013 to 2018, you actually saw almost no depreciation of the rupee.

As many of you will recall, in 2013, the rupee-dollar rate was at about 68.8 or thereabouts, in 2013. In September-October, 2013, the Reserve Bank gave an exchange swap and raised some $32-34 billion, which cooled the tempers on the rupee depreciation. The rupee, in fact, depreciated to almost Rs 59-60 to a dollar soon thereafter. And, therefore, if one juxtaposes the 2013 rate with today’s rate, considering the fact that this government has repaid that entire $34 billion, along with interest and the committed exchange rate. We have repaid all of that and after repaying that we are still about a $100 billion higher than the foreign exchange reserves that we had in 2014.

I believe the rupee really has depreciated in that sense only a couple of rupees to a dollar, if you look at the 5-year long haul. And that’s been something which I have been often articulating that the Indian rupee, by and large, has always been a far more steady currency than any other currency in the long run. And sadly, we have these ebbs and sudden falls and sudden increases in the rupee-dollar rate, but if a little more orderly long-term view is taken I don’t think the Indian rupee has depreciated any more than about 3%-3.15% in the long run over any long stretch of time that one could calculate.

But let me give you a couple of insights into the thinking of this government, which will help you realize what we stand for and why this government is different from governments in the past. Reform for us is not only privatization, reform for us is not only opening up FDI to every sector, reform for us is not only what the pink papers believe is reform – for us, reform is what impacts 1.25 billion Indians and has an impact on the life of the poorest of the poor, the man at the bottom of the pyramid.

So very early on, when this government came in, Prime Minister Modi took up the task to get financial inclusion to every citizen of this country, very well realizing that that is going to be the framework on which we can do many other programmes, many other improvements in the life of the poor, particularly, in rural India. And, for that matter, it’s not only about rural India. Many of you will be surprised, in the capital city of Delhi, when we opened up the Jan Dhan accounts we found 25 lakh (2.5 million) families, which didn’t have a bank account, in the capital city of Delhi.

So, opening 320 million Jan Dhan accounts or zero-balance accounts, one of the first projects that this government took up was very critical from the point of view of the many other projects that this government has taken up in the last four years. Electricity – can you imagine 300 million people, so many children, not having an electric connection in their homes, 65 years after independence?

This government took up a systematic approach to first take electricity to every village, then to every hamlet or every small adjunct to the villages and now we are currently in the process of taking electricity to every single willing consumer across the length and breadth of India, such that in the next few months you will have every home in this country getting the benefit of electricity.

And, of course, the quality of electricity, for those of you who are not from Mumbai, because Mumbai always had good quality electricity, but if any of you has lived in Delhi, has lived in other parts of the country – other than Gujarat maybe – you will appreciate that the quality of electricity supply, the pricing of electricity, the fact that we now have a national grid across the length and breadth of India, so the price of electricity on the grid, on the national exchange is broadly evening out and you can get electricity in any part of the country through the exchange, at a reasonable price right round the year.

All of these things are very basic and elementary changes in the lives of the people of India. Sometimes, I see some comments about our cleanliness mission, Swachhta Abhiyan. Some people also say is it the Prime Minister’s job to talk about cleanliness? It is. Because, we sincerely believe that it has huge impact on the health outcomes that we want to see in India. It will have a huge impact in the way we live, the way we work, the way the country thinks and progresses – all of these things resonate with the cleanliness levels of the country.

And to our mind, Swachhta is not just an ordinary programme. It’s a very-very deeply important programme for the various other projects that this government is taking up. And in that, if I may venture to suggest, the idea behind the various programmes that the government has initiated, take Digital India for example, take Make in India for example, take Clean India for example, take the Jan Dhan or the Financial inclusion programme, take the social security schemes where we are trying to ensure that a family in distress has some capital to rebuild its future. The Ayushman Bharat by which we hope to take the 500 million people out of the possible debt trap that comes with health problems and ensure free healthcare for 500 million citizens of India.

The fact that we are trying to double the income of farmers through a much higher MSP, a 150% of cost of production being paid to the farmers as a guaranteed support price, thereby giving a leg-up to the rural economy. And all of us in the finance market well appreciate that any income levels going up in rural India always has an impact on the overall economy. While agriculture may show a 3 or 4% growth, but its impact on the rest of the sectors is huge, because the numbers are huge and because the people involved in agriculture usually tend to spend a larger proportion of their income, on the economy, in the market place.

And, therefore, all of these projects that we have taken up actually are like beads in a necklace, they all have some connection with each other, each one of these programmes would be incomplete without the other. I mean, if we didn’t have electricity across the length and breadth of India, we couldn’t have taken digital literacy everywhere. But with electricity going everywhere, we can ensure that water will become available because pumping will be possible. We can ensure that internet becomes available to children across the length and breadth of India. We can take the road network and the rail network that is being expanded in a big way as an important element of connectivity, which helps people with their mobility, which helps people move from one place to the other and possibly build a better future, a better quality of life for their families.

So, all in all, all these projects actually have an impact on what we are trying to create as the new India, an India where every citizen has a house of his own, shelter on his head, with clean drinking water and electricity in his home, a toilet in his home, access or connectivity through road, to the internet, quality education and healthcare in the vicinity. And unless 1.25 billion Indians are assured of this kind of all-round development, I suspect, just focusing on the numbers alone is not going to change the future of India or the destiny of a billion people.

And, therefore, for us, reforming the nation is about reforming every aspect of national life. It’s a 360-degree approach to the future of every child born in this country. And to my mind, any action delayed in improving the quality of life of these children of this part of India, which has remained deprived or marginalized or has not got the fruits of development for so many decades after independence, any delay in these programmes would be very detrimental to the future of India.

Many of you may be aware, we have almost a 150 districts that had been affected by Maoism, by different forms of terrorist activities in the country. This government is making a focused effort to reach the fruits of development to those interiors, to those people in these districts, so that we can get them into the national mainstream. We are working through a massive programme so that every child gets a roof on his head through the Pradhan Mantri Awas Yojana and different schemes by which the poor can get their own home, by which the middle class is supported to own their own home through concessional interest rates.

Through the Make in India, we are looking to promote domestic manufacturing in newer and newer sectors, we are looking at promoting manufacturing to meet the ever growing needs of a billion people in a cost-effective manner. We are looking at seeing how every woman in this country is ensured a better quality of life, be it her education, be it about her marriage, be it about her cooking habits through the Ujjwala Yojana where we are getting them free gas connections. We are looking at how every woman in this country can take some skill training and become self-sufficient.

And in that sense, it is this 360 degree approach impacting every citizen of India, which is the defining feature of Prime Minister Modi’s government. In different ways, I think the markets have appreciated the various efforts being taken to change the way of thinking, the way of working in this country. I doubt any other government would have had the audacity to introduce GST and successfully introduce at that within one year of introduction. I mean, we have seen the GST as an idea being floated in 2003, when Mr Vajpayee was the Prime Minister. We saw the first contours of GST come out in 2006 or ’07, but for six or seven years, the country was not able to accept the GST in the form that it was proposed. And there are a variety of reasons for that. One of the most important reasons being trust – states did not trust that there interests will be protected, that there revenues will be protected and were always fearsome of their independence, their autonomy and their future.

Prime Minister Modi and Finance Minister Mr Arun Jaitley were able to earn the trust of political parties across the political spectrum. In fact, if I may give you one small example of how this trust was earned, some of you may recall that we had a thing called Central Sales Tax (CST). It used to be 4% many years ago. The earlier government decided to reduce it from 4 to 3, 3 to 2, 2 to 1 and then eliminate it altogether to prepare the nation for a possible GST coming in. And when they reduced from 4 to 3, and then it was to reduce from 3 to 2, 2 to 1, they committed to the states that we will compensate you for the loss of revenue because of the reduction in CST, the Central Sales Tax, for three years, and during these three years we will introduce GST in the country, the Goods and Services Tax.

So, both were to happen concurrently. For the first two or three years, the central government reduced the CST from 4 to 3, 3 to 2. They gave the compensation to the states for two years, and then they said that okay, we had only committed it for three years, now we won’t give you anymore compensation. But as all of you are well aware, if any contract which has two conditions precedent, one says we will compensate you as the CST comes down. The second CP was that we will introduce GST during this period. The government was unable to introduce GST or bring a formulation that was acceptable to the whole country.

So, ideally, the central government became responsible to pay for the loss of CST until such time as GST got introduced. When Finance Minister Shri Arun Jaitley took charge, and he saw that the states were very wary of the centre, backing out of their commitments and their promises and he saw that this CST compensation was something which was causing angst, which was causing uncertainty that if they could not give us the compensation of CST, despite the fact that GST had not been introduced, then god forbid, going forward, if the GST revenues are down, how do we trust the central government will compensate us?

Mr Jaitley took the responsibility upon himself and the central government paid 37,000 crore rupees, it’s almost $5.5 billion to the states as CST compensation for that earlier years before the GST was finally introduced. And that gave a solid message to the states that here is a leader, here is a government that we can trust, that will live up to its commitments, that has not only shown that it will live up to its own commitments, but is also living up to the commitments of the past which earlier governments did not do.

Of course, there were many other similar steps, which gave confidence, the fact that we improve the GST Council’s formulation, the fact that it worked in unison, in a spirit of consensus. Truly, an example of collaborative and cooperative federalism at its best. And I think efforts like GST to bring one uniform tax in the country, reduce the burden of several taxes and the cascading effect of several taxes on the common man, the fact that a series of measures were taken to take India towards a more honest economy, an economy that gave a premium to honesty, an economy that valued honesty, an economy that respected people who paid their taxes correctly.

That is having significant impact on the collections of taxes that we are now seeing happen. We just the numbers, almost a 70 odd percent increase in filers of income tax. You are seeing GST numbers are robust, so much so that we have been able to reduce tax rates on almost 400 items within the first year of government, almost 400 items, first year of GST. Apart from several items where the service is also we have been able to reduce the taxes.

So several big wins that have happened in the last four years, large amount of transparency brought in in the working of government, almost everything now available on auction, equal opportunity to everybody to participate. Foreign investors don’t have to be worried that coal blocks could get cancelled or spectrum allotment could get cancelled because the process was not transparent and fair. I think those are the things that are now far behind us, behind our memory.

We are looking at an empowered India, an India where every citizen feels empowered, feels truly a beneficiary of the various government schemes where money reaches in directly without intermediaries through the direct benefit transfer, where every Indian can see the fruits of development reach the remotest corners of India to the poor persons’ homes, where today, every Indian can hold his head high anywhere in the world when he says he comes from India, he’s looked upon with respect that you don’t come from a ‘fragile five’ economy, but you come from the world’s fastest growing large economy.

Thank you very much ladies and gentlemen for your patient hearing.

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