"If inflation is high then you begin at a point where growth is low. We need to change this situation. And, I believe that unless we find out the reasons which have led us to such a situation, it is difficult to solve it," he said.
Jaitley was speaking at a BJP forum meeting here, his second engagement in the nation's financial capital after becoming the finance minister.
He attributed the reasons for the current predicament to policy paralysis and the populist measures of the previous UPA regime.
"Some of the populist schemes like free medicines in Rajasthan did not help the then ruling party to come back to power," the Finance Minister said.
Stating that the Narendra Modi government inherited very low growth, Jaitley said GDP grew at 4.5 per cent and 4.7 per cent, respectively in 2012-13 and 2013-14.
"The manufacturing sector for one year was flat and another year it was negative. When manufacturing growth becomes negative, the Customs and Excise duties come down, revenue of government also comes down, forcing it to borrow more," he said.
Calling for eradication of poverty, the Minister said one of the challenges for the nation is to remove poverty and to increase the pace of development.
"People are not ready to accept that the pace of development is slow and we are not able to remove poverty," he said.
Jaitley for rationalising subsidies
Finance Minister Arun Jaitley today said the ballooning subsidy bill needs to be lowered by rationalising the dole-outs. Stating the government should not be doling out pre-poll populist measures that increases the subsidy bill, Jaitley said, "If we waive off loans, empty the government treasury, and destroy economic discipline, then I feel this would not help the economy or the country."
Admitting he too gets subsidies, Jaitley said, "But I firmly believe that I have no right to avail of those subsidies."
However, the Minister, who was speaking at a BJP-organised function in the city, did not elaborate on the issue.
It can be noted that after touching a low of under 2.5 per cent of GDP in FY07, the government borrowings have been on a continuous upward spiral.
This pushed up the subsidy bill to over 2 per cent of the GDP as of FY14.
The subsidy bill, which began when the economy was clipping past 9 per cent, did not show a decline during the slowdown period.
The rising subsidy bill has pushed the fiscal deficit to 4.5 per cent last fiscal and this year the government has pegged it at 4.1 per cent of the GDP or at Rs 5.97 trillion in net market borrowing, which is more than Rs 34,000 crore during FY14 fiscal.
However, after hitting 56.1 per cent of the full fiscal target right in the first quarter of the fiscal, the government had said it would borrow Rs 16,000 crore less in the second quarter.
This is because its finances got an unexpected push from the Reserve Bank which transferred a record over Rs 53,300 crore of its surplus to the government earlier this week.
Thereby the borrowing plan for first half has been reduced to Rs 3.52 trillion from Rs 3.68 trillion.
However, net the borrowing for this fiscal is expected to touch Rs 4.57 trillion, which will be around 3 per cent lower than last fiscal.
During the last financial year, the government had borrowed Rs 5.63 trillion.