In 2014, the National Democratic Alliance (NDA) inherited an economy which was struggling with over-leveraged companies and banks saddled with a mountain of toxic assets. The situation called for tough action, not only to fix the problem but also to resolve the larger issue of credit indiscipline among companies and an inefficient legal system dealing with bankruptcies. Jaitley presided over putting in place a new Insolvency and Bankruptcy Code (IBC) and stitched together consensus among various political parties for a regime change in indirect taxation and getting the Constitution amended for it.
In rolling out GST in July 2017, Jaitley had to show strong resolve in the face of protests and fears voiced by several state governments and worries expressed by some of his own officials about the central government’s burden to compensate states for their revenue loss in the new tax regime. In a Facebook post on 1 July this year on the completion of two years of GST, Jaitley described obstacles to India’s biggest tax reform since independence.
“There were twin challenges. Firstly, to get the states to agree because some of them felt they were losing their fiscal autonomy to tax and, secondly, to develop a consensus in the Parliament. The States were scared of the fear of the unknown. The critical point which enabled the government to persuade the states was to cushion them with a 14% annual increase from the tax base of 2015-16 for a period of five years."
It was Jaitley’s offer of compensation backed by a Constitutional guarantee that finally sealed the consensus among states to go ahead with the GST rollout in 2017. Though the reform led to an inevitable disruption in economic activity as businesses scaled down production to clear their pre-GST inventory, GST simplified indirect tax system, brought transparency, removed check posts along state borders and reduced the tax burden on consumers as a result of a series of tax cuts. Jaitley had pegged the benefits to consumers at ₹90,000 crore a year.
While defending policies like bankruptcy reforms, Jaitley often expressed deep indignation at the way businesses that defaulted on payment obligations to banks blamed the earlier inefficient legal framework dealing with bankruptcies. Under him, the Code was amended to bar defaulting shareholders from winning back their companies unless they pay back dues first. The results are showing now. Out of the 2,162 companies admitted to bankruptcy tribunals since the end of 2016 when the new system became operational, resolution plans have been approved in 120 cases, bankruptcy petition of 101 companies have been withdrawn and several cases settled out of court. Liquidation process is on in 475 cases.