The economic trough makes his successor’s job that much tougher, though the final decisions are always those of the PM
Given the additional complications with his health in recent months, and his fairly long absences from work even before that, it was always clear Arun Jaitley wouldn’t be able to do full justice to the job were he to be appointed finance minister the second time around; to that extent, Jaitley has done the honourable thing by opting out. While a finance minister’s job is among the most demanding ones in any government, Jaitley has always been much more than just an FM. He doubled up as defence minister for a long time, a period in which he cleared proposals running into tens of thousand crore rupees for potential manufacturing as part of the Make-in-India programme.
He was clearly the government’s go-to person for all matters judicial and played a key role in the National Judicial Appointments Commission (NJAC) Bill—to propose an alternative to the collegium appointing/promoting judges – that was finally struck down by the Supreme Court. And, as FM, he was central to most government reforms such as the Insolvency and Bankruptcy Code (IBC), perhaps one of the most significant attempts to resolve the banks’ NPA crisis; the courts seem to be slowing resolution of NPAs, but Jaitley’s IBC solution allows banks to take huge haircuts on their loans but without any accusation of favouritism by the government/banks. Other reforms, apart from GST, that Jaitley played a big role in was the decision to open up the coal sector to private players, and even coming up with election bonds that kept the names of donors to political parties secret while payments were made by cheque was a Jaitley innovation; this is not perfect as donors can remain anonymous, but they remained so even in the past when they made donations in cash.
Jaitley’s great interpersonal skills, fine judicial mind and the image of not being a hardliner made him the ideal spokesperson for the government on most critical issues. And while Jaitley is unfairly blamed for GST being too complex with too many tax rates – what could he do when the states didn’t agree?—it was primarily his persuasion that ensured the number of items in the higher brackets has constantly been pruned; though the composition of the GST Council allows for a vote, Jaitley chose persuasion and has, till date, never used the vote for any decision. When the UPA left him to deal with the tricky issue of the retrospective tax, he came up with a judicial solution that ensured the government was not accused of favouring anyone; he said that while the government would not use the law, he would accept all judicial—and arbitral—decisions on the existing cases.
If Jaitley had a weakness as an FM, it was giving his officers too much leeway; as a result, he was unable to get them to reduce pending tax litigation as fast as he would have liked, and even allowed them to convince him to levy MAT on FII investments; it was only when FIIs began withdrawing their money that Jaitley set up a panel under Justice AP Shah who recommended scrapping the levy. Despite Jaitley’s promise on being fair to victims of the retrospective tax, the tax bureaucracy confiscated Cairn Energy’s shares and dividends and, till now, kept arguing retrospective tax cases couldn’t be arbitrated. It also ensured the promise of a 25% corporate tax was never implemented for large firms, and the much-needed direct tax code which would reform the tax system was also delayed; as a result, it was left to Piyush Goyal to deliver relief to over 3 crore taxpayers by effectively doubling the income tax exemption limit to Rs 5 lakh. A big mistake Jaitley made appears to be the decision to change the RBI’s focus to inflation-targeting (IT); while inflation has collapsed, this is mainly due to global prices of food coming down, but IT locks the RBI into a higher than necessary interest rate regime.
While Jaitley’s successor will have to make a recalcitrant tax bureaucracy deliver and persuade state finance ministers to reduce the number of GST rates – only then does GST get really effective—rising oil prices will pose an additional challenge; Jaitley was able to help finance fairly high government capex on roads and railways through the bonanza got from the collapse in crude prices. To the extent the demonetisation bonanza seems to have exhausted itself, the next finance minister will have to rely on a combination of tax reforms and data mining to get a bump in collections. Jaitley was also blamed for forcing PSUs to take over other PSUs, but not going ahead with privatisation—including that of banks—was always the prime minister’s call. The next FM can only be as effective as the PM allows him to be.