ARUN JAITLEY | A REFORMER BY INSTINCT AND CHOICE

Well before the National Democratic Alliance (NDA) under Narendra Modi won a commanding majority in the April-May 2014 general election, it was clear that Arun Jaitley was front-runner for the finance minister’s post if the Bharatiya Janata Party (BJP)-led coalition formed the government.

The fact that Jaitley, who turned 62 in December, indeed went on to occupy the office on the first floor of North Block despite losing the election from Amritsar only proved how indispensable he is to the BJP and Modi, who led the party to the first majority in the Lok Sabha in 30 years.

The BJP’s master strategist and Modi’s go-to man for negotiating the intrigue of Delhi politics, to which the former Gujarat chief minister was a relative stranger, Jaitley quickly found his feet in the finance ministry although his professional calling is the law. Previous stints in the commerce and corporate affairs ministry in the early 2000s, when the NDA was last in power, helped.

Domestic and foreign investors were euphoric about the rise to power of Modi and the NDA, perceived to be pro-business, and expected the government to move quickly on so-called big-bang reforms. After unveiling his first budget in July, Jaitley said the government was indeed pro-business, but it was also, equally, pro-poor.

“Unless the government gets revenue, it cannot build infrastructure and service the welfare schemes for the poor. By being pro-business and pro-poor, I am not contradicting but both have to exist at the same time," said Jaitley, whose Facebook page still has that statement imprinted on his cover photo.

But that has not prevented the government from pushing through reforms, including bills to raise the cap on foreign investment in insurance joint ventures to 49% from 26% and allowing for the auction of coal mines and other mineral sites, thanks to some deft management of numbers in the upper House, where the government is in a minority.

Most see Jaitley’s hand in successfully isolating the Congress and the Left in the Rajya Sabha by convincing regional parties to shift sides.

N.K. Singh, a former civil servant and ex-Janata Dal (United) member of Parliament and now a BJP member, at a recent event in Delhi, described Jaitley as a “reformer by instinct and by choice".

“It comes naturally to him. It was his audacity to bring about three far-reaching ordinances, and he was sanguine that these ordinances will be converted into legislations," he said.

“People were sceptical whether such ordinances could be law or not, but I think we owe it to his negotiating skill, we owe it to his ability to win people away from the opposition, considering the government does not have a majority in the Rajya Sabha, to be able to convert them into legislation," he added.

Commerce minister Nirmala Sitharaman, who considers Jaitley her mentor, showered praise on Jaitley on the microblogging site Twitter. “The clarity in his thinking & simple articulation are admirable but difficult to match," she wrote on 13 December.

To be sure, the government has found itself in a bind on another proposed reform—a bill that seeks to make it easier for businesses to acquire land and which, critics say, will undermine the interests of farmers.

Opposition parties have branded the government pro-rich and anti-farmer, a perception that the NDA can ill-afford to take root, given the drubbing it received in the February election to the Delhi assembly in which it won just three seats out of 70.

“Yours is a government of influential people, of those who are suited and booted," Congress party vice-president Rahul Gandhi said in Parliament on 20 April.

Jaitley has a challenge on his hands in dispelling that impression and in building consensus on a proposed goods and services tax that would remove inter-state trade barriers and widen the tax base, but which some states are opposing on concerns about a potential loss of revenue.

The finance minister says India cannot afford to lose a historic opportunity that’s knocking at its doors to return to a path of rapid economic growth.

“In agriculture, job creation, infrastructure, manufacturing—these are all areas where we have to cover a lot of distance. I would be satisfied if India were touching a double-digit growth rate, if job creation becomes faster, if agriculture takes a leap," he said at a recent event. “We have missed historical opportunities in the past. I can quite see an opportunity revisiting."

As N.K. Singh puts it, Jaitley has the tenacity to pursue his ideas till the logical conclusion, perhaps sacrificing something in the process, but without losing sight of the destination.

The government will need all his skills and some luck. — Asit Ranjan Mishra

JAYANT SINHA | AN INSIDER WHO CAN THINK LIKE AN OUTSIDER

Jayant Sinha spent 12 years at McKinsey and Co. and about four-and-a-half years at Omidyar Network, the investment firm run by eBay founder Pierre Omidyar and his wife Pam, before taking the plunge into politics in 2014, when he followed his father, Yashwant Sinha, into the Bharatiya Janata Party (BJP).

Sinha’s background, including a long stint in the US, and his present position as minister of state for finance, helps him see things from the perspective of both the government and the investor community, he said in an interview.

“Having spent a lot of time in the private sector, first as a management consultant and then as an investor, you do understand the challenges and opportunities associated with business in India. While India has many opportunities, there are challenges as well," said Sinha, who turned 52 on 21 April.

The challenges include improving the ease and lowering the cost of doing business in India, where businesses tend to spend a lot of time with various government departments trying to get things done, he said. “To be able to solve these, you have to understand how the government actually works. I am in a position where I can be a helpful problem-solver, both for business people and investors as well as for the government," Sinha added.

Sinha, one of the most articulate ministers in the government, holds a B.Tech from the Indian Institute of Technology-Delhi, an M.Sc from the University of Pennsylvania and has done his Master’s in Business Administration from Harvard Business School.

He may be a relative newcomer to politics, but the first-term member of Parliament is no stranger to public life. His father, Yashwant Sinha, an Indian Administrative Service (IAS) officer-turned-politician, served as finance minister (1998-2002) and as external affairs minister (2002-04) in the first National Democratic Alliance (NDA) government led by Prime Minister Atal Bihari Vajpayee.

The senior Sinha last year gave up the Hazaribagh Lok Sabha seat, which he won three times in the past, for his son, who duly won his first election to the lower House.

Appointed minister of state for finance in November, Sinha played a key role in the preparation and presentation in February of the NDA government’s first full budget, which focused on remaking the Indian economy by reinforcing the country’s deficient infrastructure and making it easier for investors to do business in India. Sinha liaised with foreign investors and helped address long-pending concerns of the private equity and venture capital industry on issues such as taxation.

From making presentations to encourage foreign investors to invest in India to fielding queries in Parliament, Sinha has managed a seamless transition from being a corporate executive and an investor to a politician.

In the absence of finance minister Arun Jaitley, Sinha handled the crucial task of piloting the insurance bill through Parliament. The bill sought to raise the cap on foreign investment in insurance to 49% from 26%.

In Parliament, Sinha had to face barbs from fellow MPs for taking a stand opposite to that of his father on the issue of higher foreign investment in insurance. He managed to successfully steer the bill through Parliament by sharing experiences and data from countries that have benefited from foreign investment in insurance.

“Being the son of a former IAS officer and a politician, I always had a window into this world and I have always had an understanding of how the government works. But now that I am in the government, I know all intricacies of how a government works," Sinha said.

Sinha, who was Reserve Bank of India governor Raghuram Rajan’s classmate at the Indian Institute of Technology-Delhi and describes him as an old friend, could also play a crucial role in cooling issues that periodically flare up between the central bank and the government. — Remya Nair & Gyan Varma

RAGHURAM RAJAN | THE INFLATION WARRIOR

At an event in Mumbai to celebrate the 80th anniversary of the Reserve Bank of India (RBI), Prime Minister Narendra Modi had nothing but praise for governor Raghuram Rajan, giving the lie to frequent speculation about tension between the government and the central bank on monetary policy.

“I meet Raghuram every two months. He brings 3-4 slides and explains things to me so perfectly that I have no questions (to ask)," said Modi. “As a representative of the government, I express my satisfaction with the role being played by RBI. This is possible only when there is a resemblance in the view of RBI and government."

Modi’s comments were seen as a ringing vote of confidence in Rajan, who has been at the helm of the central bank since 4 September 2013, having taken over at a time when consumer price inflation was in double digits and the rupee looked extremely vulnerable, having sunk to a series of record lows in the previous month.

Rajan, now 52, went to war against inflation the moment he became RBI’s 23rd governor, staunchly resisting government and corporate calls to lower borrowing costs to boost economic growth. That was a war he waged until 15 January 2015, when he finally lowered the repurchase rate by a quarter of a percentage point—the first cut by RBI in 20 months.

Consumer-price inflation will probably be below the January 2016 target of 6% set by RBI, said Rajan, who relented only after the inflation rate had fallen to 5% in December 2014. When he took over, the Consumer Price Index (CPI) reading was 10.7%. The rupee, which fell to a record low of 68.85 per dollar a week before he became governor, has stabilized at between 62 and 63.

Rajan cut the repo rate by another quarter point in March, but his term in RBI has seen him firmly establish his credentials as an inflation warrior.

In March, the government and RBI agreed on a monetary policy framework that will make managing inflation the key determinant of central bank actions—considered one of the biggest monetary policy reforms since the inception of RBI in 1926.

As part of the framework, RBI will aim to lower inflation to 4%, with a band of 2% on either side, by March 2017 and keep it around that level.

Rajan moved to the Reserve Bank after spending about a year as chief economic advisor.

An alumnus of Indian Institute of Technology-Delhi, Indian Institute of Management-Ahmedabad and Massachussets Institute of Technology (MIT), where he got his doctorate in economics, Rajan was the youngest chief economist at the International Monetary Fund (IMF)—a post he held from 2003 to 2006.

As early as in 2005, he warned of an impending global financial crisis, which befell the world in September 2008 with the collapse of Lehman Brothers Holdings Inc.

Before being made chief economic advisor, Rajan was the Eric J. Gleacher distinguished service professor of finance at the Booth School of Business at the University of Chicago. He chaired the committee set up by the Planning Commission on financial sector reforms that submitted its report in 2008.

His stint as governor hasn’t been without its share of run-ins with the government. Last year, the government and RBI faced off over a plan by the latter to appoint a chief operating officer. The government’s proposal to create an independent debt management agency and take away the job of regulating money markets from RBI have been perceived as a dilution of RBI’s powers.

Rajan has also been implicitly critical of a proposal by the financial sector legislative reforms commission to create an appellate authority that would hear appeals against decisions made by financial sector regulators. In a February speech, he said: “We cannot have escaped from the License Permit Raj only to end up in the Appellate Raj!"

Differences between technocrats and politicians is not a new phenomenon, said Renu Kohli, a New Delhi-based macroeconomist and Mint columnist.

“Rajan has so far been very careful in his public responses to some of the government’s policies though backroom negotiations between the government and RBI are a very common feature," Kohli said.

The big challenge for the RBI governor will be the slow pace of economic recovery, she said. “Fiscal and growth outcomes will be critical for effective monetary policy targeting. Though Rajan has brought in the single biggest reform (monetary policy framework), the fact that there are not many signs of a gradual recovery in growth will become the biggest challenge for him," she said.
— Remya Nair

ARVIND PANAGARIYA | THE POLICY MAN

Arvind Panagariya’s appointment in January as the first head of NITI Aayog, the successor to the Planning Commission, came as no surprise.

Then a professor at Columbia University, the 62-year-old Panagariya is a protege of Jagdish Bhagwati, one of the best-known Indian economists, and they had together fought a duel on economic ideologies with Nobel laureate Amartya Sen.

The debate was about growth versus distribution and the economic model best suited for India. Free market economists Bhagwati and Panagariya argued that strong economic growth has directly improved the lives of poor Indians, while Sen held that India’s successful growth record has been tarnished by abysmal levels of human development.

Bhagwati and Panagariya called for reforms to push growth and end poverty. Sen retorted that growth was meaningless without the state spending on human capabilities and placed greater emphasis on government-controlled distribution to eradicate poverty.

That battle for intellectual supremacy in 2013, in a way, set the stage for the 2014 electoral slugfest in which the Bharatiya Janata Party (BJP) emerged as the first Indian political party in 30 years to win a majority on its own in the lower House of Parliament.

Panagariya, who had worked as chief economist at the Asian Development Bank before joining Columbia as an economics professor, had, in his columns in many newspapers and his academic work, defended Modi’s growth-oriented Gujarat model of development and criticized the previous Congress-led United Progressive Alliance government’s emphasis on entitlement-based schemes such as the rural jobs scheme and the National Food Security Act.

After Prime Minister Narendra Modi decided to abolish the Planning Commission, a vestige of the command and control economy India adopted after independence, and replaced it with NITI Aayog—National Institution for Transforming India—Panagariya appeared to be the logical choice to head it. Modi is the nominal chairman of the body and Panagariya the vice-chairman.

NITI Aayog is meant to reflect the changes required in India’s governance structures and provide a more active role for the states in achieving national objectives. The institution will provide governments at the central and state levels with strategic and technical advice across the spectrum of policymaking.

Panagariya’s first and biggest challenge will be to establish NITI Aayog as a credible institution that commands respect both from state and central government bureaucrats. The nature of the beast is still a mystery to many.

“We have no clarity yet on how the institution will function. We are all waiting to hear from the government and the vice-chairman (Panagariya)," an official at NITI Aayog said on condition of anonymity.

NITI Aayog member Bibek Debroy, an economist, accepts that things are still in a flux and are still being worked out.

“We have to check if the people we have inherited are the right people. They were here for certain other tasks and the mandate has changed. And then we need to get people from outside. Those people need not necessarily be from government. We may need to hire consultants. Until the human resource part is resolved, you cannot actually get fully started," he said in an interview.

The government has also tasked Panagariya with developing a working definition of poverty. The definition of poverty and drawing a poverty line is significant as many government welfare programmes targeted at the poor don’t always reach the intended beneficiaries. In the past, the exercise has inevitably been followed by controversy.

Part of NITI Aayog’s mandate is to take a look at the existing welfare programmes, on which trillions of rupees are spent every year, and suggest improvements.

But without any financial clout and say on the programmes at either the central or the state level, whether the institution will be able to influence a change in course and the economic development model at large is a question to which everyone is still waiting for an answer from Panagariya.

The economist didn’t reply to a questionnaire from MintAsia for this story. — Asit Ranjan Mishra

ARVIND SUBRAMANIAN | AN OUTSIDER-TURNED-INSIDER

When Arvind Subramanian’s name first came up as a likely candidate for the post of chief economic advisor in August last year, it was a bit of a surprise to many.

Subramanian, who was then the Dennis Weatherstone senior fellow at the Peterson Institute for International Economics and a senior fellow at the Center for Global Development, both located in Washington DC, had been publicly critical of the Indian government on at least two occasions.

Just the previous month, after India decided to block the trade facilitation agreement (TFA) at the World Trade Organization (WTO), citing a lack of progress in finding a permanent solution to its concerns on public stockholding of foodgrain, Subramanian wrote that India should withdraw its opposition to the pact.

The pact was aimed at simplifying customs procedures, facilitating the speedy release of goods from ports and cut transaction costs.

“India looks obstructionist by opposing the TFA, especially for the new government, led by Prime Minister Narendra Modi, which is trying to project an image of being investor- and market-friendly and constructive in its global engagement. The reputational costs of blocking the TFA could be high," he warned in a blogpost on the website of Peterson Institute on 29 July.

On the Modi government’s first budget in the same month, Subramanian maintained it lacked substance and failed to spell out policy actions. “In substance, this was a budget prepared by incumbent bureaucrats, not incoming politicians. It represented continuity—which surprisingly was endorsed by much of the post-budget commentary—when the need of the hour was change," he had written on 11 July.

Later, it also emerged that Subramanian had advised the US government to start a dispute settlement procedure against India at the WTO on the matter of India’s intellectual property rights laws.

In the event, Subramanian’s candour didn’t come in the way of him succeeding Raghuram Rajan, who had in September 2013 become governor of the Reserve Bank of India, as the chief economic advisor. His appointment, recommended by finance minister Arun Jaitley, was approved by the Prime Minister’s Office and he took charge on 16 October.

“I want to say that it is an absolute honour and privilege to come in at this time, a time of great hope and dynamism for the Indian economy, to serve in a government that has a mandate for reforms and change," Subramanian said on the day he took charge.

Like Rajan, Subramanian, an alumnus of Oxford University from where he obtained his MPhil and DPhil degrees, worked for a spell at the International Monetary Fund (IMF), where he was an assistant director in the research department. Specializing in economic growth, global trade and intellectual property rights, Subramanian was involved in the Uruguay Round of multilateral trade talks in 1988-92, which led to the creation of the WTO in 1995.

He also taught at Harvard University’s Kennedy School of Government (1999-2000) and at the Johns Hopkins School of Advanced International Studies (2008-10).

Subramanian made a smooth transition to his first government job, accompanying Jaitley in all key meetings, including talks with state finance ministers on the proposed goods and services tax (GST), which is billed to be India’s biggest tax reform, a move that will turn it into a common market by dismantling inter-state boundaries. He created a bit of a stir by suggesting in an analysis presented in December that the monetary policy had “lost credibility" when Y.V. Reddy and D. Subbarao served as Reserve Bank governors. Analysts called it an immature and naïve comment.

At an interaction with The Indian Express journalists last month, Subramanian was unrelenting: “I know both of them (Reddy and Rao) very well and I like them a lot, but when you have double-digit inflation for six years, what can you say? That there was a credible anchor? Dante has a lovely line in Inferno, where he says something to the effect that fence-sitting is the worst of all moral crimes."

Subramanian revamped the government’s Economic Survey that’s presented a day before budget, going beyond the cosmetic changes his predecessors had introduced. Modelled on the IMF’s World Economic Outlook, the first survey drafted by his team traced the state of the economy in two volumes, with the first authored by Subramanian being a commentary on the Indian economy.

“India has reached a sweet spot—rare in the history of nations—in which it could be launched on a double-digit, medium-term growth trajectory, which would allow the country to attain the fundamental objectives of ‘wiping every tear from every eye’, " the survey said.

Subramanian was also the first to make a case for higher public spending to boost economic growth in the absence of any significant private investment—an idea the finance minister incorporated in his budget by delaying the fiscal consolidation process by a year and boosting capital expenditure.

According to Arvind Virmani, one of Subramanian’s predecessors in the job, said the role of chief economic advisor is to suggest new ideas to the government without losing sight of the political reality. “He needs to have his feet on the ground and suggest ideas that are practical under the current circumstances. He will be ultimately judged by how much of the ideas he suggested could actually be implemented," he said.

Subramanian’s Economic Survey recommended liberalizing foreign direct investment in supermarkets and hypermarkets—something the government has resisted. He said removing foreign investment barriers could “create the possibilities for filling in the massive investment and infrastructure deficit which results in supply-chain inefficiencies".

His advocacy of an idea that’s anathema to the government showed he can stick his neck out in favour of economic rationality and go beyond political correctness. — Asit Ranjan Mishra

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