After it returned to power with a thumping majority this May, the exhilaration of having achieved 303 seats dimmed slightly for the BJP with Arun Jaitley’s announcement that he would not be a part of the Narendra Modi government. The party’s chief troubleshooter opted out of active office due to poor health.
Jaitley was undoubtedly one of the BJP’s most prominent leaders, besides being the Finance Minister during the first term of its government between 2014 and 2019. And he leaves behind a rich and chequered legacy, one where his tenure as the Finance Minister is marked with bold reforms, including some of the most far-reaching since Independence, as well as the notorious ‘demonetisation’ that dealt the hardest blow to the country’s masses.
He is credited with ushering India into the league of the world’s fastest growing economies, ahead of mighty China. India remained in that slot till the last quarter of the last fiscal, though the government on year basis maintains it is still the fastest growing economy.
Jaitley also managed to control inflation — bringing it down from 7.2 per cent to 2.9 per cent. He showed a path of fiscal prudence and fiscal deficit was brought down to 4.1 per cent in 2014-15, to 3.9 per cent in 2015-16, to 3.5 per cent in 2016-17, to 3.53 per cent in 2017-18 and 3.4 per cent in the last fiscal.
The Goods and Services Tax (GST) regime and the Insolvency and Bankruptcy Code (IBC) were implemented during his tenure, even though the GST wasn’t exactly a BJP brainchild.
Jaitley had opposed it when the UPA government first introduced it during its last term. But he succeeded in implementing the tax reform with a federal democratic structure and an equal voice of the states, including that of the non-BJP-ruled states, something the UPA found hard to achieve. After initial teething troubles, the tax reform has some what settled now.
But on the flip side, Jaitley could not strictly adhere to the Fiscal Responsibility and Budget Management (FRBM) Act glide path, due to the structural disruptions in the economy, ironically following the implementation of the Goods and Services Tax. Yet, by keeping the fiscal deficit under control, his NDA government won a rare and coveted rating upgrade from Moody’s Investors Service.
Jaitley’s tenure saw the GDP grow from 6.4 per cent in FY14 to 7 per cent, fiscal deficit come down from 4.5 per cent in FY14 to 3.4 per cent in FY19, and inflation decline from 9.5 per cent in FY14 to 2.92 per cent in April 2019. This is a record and astounding for a growing economy with 70 per cent based on agriculture.
The Insolvency and Bankruptcy Code was the first ever time-bound resolution for dealing with high NPAs and bankruptcies and it changed the borrower-creditor relationship forever. Crisil estimates showed Rs 70,000 crore were recovered in FY19 through the IBC and Rs 3 lakh crore relating to 4,000 cases was recovered before going to the IBC.
It was again Jaitley who brought in a clear framework for setting interest rates by the RBI and its Monetary Policy Committee through majority votes. The panel set a 4 per cent inflation target for the RBI to keep the economy safe from high inflation.
The clean up of non-performing assets (NPA) of banks started during Jaitley’s time as Finance Minister and under his watch. The gross NPA declined from 11.2 per cent in March 2018 to 10.3 per cent in December 31, 2018. Some public sector banks even returned to profit.
His tenure also saw the initiation of consolidation of state-run banks. Five associated banks and the Bharatiya Mahila Bank merged with the State Bank of India (SBI), while Dena Bank and Vijaya Bank merged with Bank of Baroda to create a larger entity.
Then there were FDI reforms. While the defence, insurance and aviation sectors were opened to higher FDI, many others were thrown open to the automatic route cutting down delays. The archaic Foreign Investment Promotion Board (FIPB), one of the remnants of the bureaucratic set-up, was abolished. FDI inflows shot up to over $44 billion from $23.8 billion.
Jaitley’s vision extended to Budget reforms as well. He preponed Budget presentation to make funds available to ministries in the initial months of the fiscal year. He also ended the separate railway Budget and did away with the distinction between plan and non-plan expenditure.
It was he who brought in the Benami and Black Money laws, and also introduced the Jan Dhan Yojna to open bank accounts for all, creating financial inclusion.
But Jaitley’s term in the Finance Ministry will also be remembered for the Modi government’s most controversial and devastating decision — demonetisation. While the impact and the achievement of its intended objective to crack down on terror funds is still debated, the sudden decision — on which many say Jaitley was not kept in the loop by the Prime Minister — the government claimed boosted tax collections, compliance and digital transactions and all money became accountable, means black money was completely uprooted.
Economists and government opponents say with some conviction that demonetisation muted and dampened growth, killed the unorganised sector, real estate and cash-based industries and the step did not exactly unearth black money in a big way. All these had their impact.
Even without the misstep attributed directly to him, Jaitley had to face some of its consequences. The GDP growth slipped to a 5-year low of 6.8 per cent in his last year. Consumption and private investment didn’t pick up and the starting of a slowdown commenced.
He was also accused of destroying the autonomy of financial institutions like the RBI and discrediting job and growth data.
Earlier this year, the National Sample Survey Office (NSSO) found that 36 per cent of the companies taken into account for the new GDP calculation are either untraceable or had been categorised wrongly. The disputable figures pertain to the MCA-21 database of companies of the Ministry of Corporate Affairs, a ministry once under Jaitley. The Finance Ministry said the exaggeration if any due to this, may have been minimum, opening a can of worms.
Before that a massive row erupted after the Central Statistics Office (CSO) said the Indian economy grew in double digits twice during the previous UPA government led by Manmohan Singh. The new GDP back series data has 2011-12 as the base year, while the earlier series had 2004-05 and 1993-94.
The back series data showed that the GDP grew by 10.23 per cent in 2007-08 and 10.78 per cent in 2010-11 against the earlier numbers of 9.32 per cent and 8.91 per cent, respectively. The government promptly revised the base year and following the back-series revision, average growth under the UPA for FY06-12 fell to 6.82 per cent from the earlier 7.75 per cent. In comparison, the average growth during Modi’s four years was found to be 7.35 per cent, significantly higher than the Manmohan-era numbers.
There was a widespread thinking that the exit of former RBI governor Urjit Patel was linked to the NDA government (Jaitley’s) demand for digging into the RBI’s autonomy and financial freedom. At the height of the Nirav Modi fraud, Patel raised the issue of the RBI governor’s power to oversee the work of the state banks further widening the gap between the North Block and the Reserve Bank’s positions.
There is no denying that Jaitley was the government’s key firefighter, even beyond finance. He defended the government in media and public on the multi-billion dollar Rafale fighter jet deal. It was he who carried the message to the public that the Rafale jet prices, details of which were submitted in a sealed envelope to the Supreme Court, were significantly lower than negotiated during the UPA government’s tenure from 2007-2012.
In one of his strongest defence, the lawyer-turned politician argued: “The Rafale deal not only strengthens the combat ability of the Indian Air Force (IAF), but also saved thousands of crores for the exchequer.”
He also argued on the Triple Talaq Bill, the government’s bid to end the practice of “triple talaq” among Muslims. And even in his weak health recently, he backed the government on abrogating Article 370, that granted a special status to Jammu and Kashmir.
Scrapping Article 370 of the Constitution had been one of the BJP’s pet issues, repeated in all its election manifestos. “A monumental decision towards national integration” is how Jaitley described the decision.
Complimenting Prime Minister Narendra Modi and Home Minister Amit Shah on the move, he wrote: “A historical wrong has been undone today. Article 35A came through the back door without following the procedure under Article 368 of the Constitution of India. It had to go.”
Finding a replacement for Jaitley, specially during this time of an economic downturn, will be hard for the BJP.