India: Assessing Arun Jaitley’s legacy

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Introduction of the GST and demonetization mean Jaitley had a far bigger impact on Indian finance than his single term as minister would suggest.

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Arun Jaitley, the former finance minister of India


The passing of Arun Jaitley, the former finance minister of India, offers a chance to assess his legacy. History will judge him to have overseen some of the most momentous financial moments in the country’s modern history.

Jaitley was minister of finance and corporate affairs under Narendra Modi’s first government, from 2014 to 2019; he declined to be part of the next government following Modi’s election this year, citing ill-health.

The biggest change he drove through under his tenure was tax reform, and in particular the introduction of the goods and services tax (GST).

It was not popular at the time: many smaller Indian businesses in the informal economy had never paid taxes. It was complicated, and beyond the reach of many it affected: at the time the Confederation of All India Traders said that one in three of its 60 million members did not have a computer to register on the government’s tax network.

But go through it did. In the month of April 2019, Rs1.139 trillion ($15.9 billion) was collected in GST, a vital level of state income in a country with a widening fiscal deficit. India’s fabulously complex tax environment was simplified – not completely, but it improved – and the country has gone from 172nd to 121st in the World Bank’s ease of paying taxes index since the GST was introduced.

Momentous

Equally momentous, though more associated with Modi than Jaitley, was the extraordinary demonetization programme that took place one night in November 2016, with the withdrawal of large denomination banknotes from supply in order to try to avoid crime and bring the informal sector into the financial mainstream.

Few economic policies anywhere in the world have been as controversial as this one: nobody, not even the chair of State Bank of India, was warned the move was coming, and the decision was immensely disruptive to small business, even if it gave a huge kick-start to fintechs and digital businesses.

Jaitley robustly defended his leader and friend’s policy, as he always did; as a lawyer, Jaitley had helped to defend Modi, then the chief minister of Gujarat, after riots there in 2001.

Jaitley was articulate, intellectual and sharp, but also funny and able to build consensus – and it is likely Modi would have failed to get a lot of his economic policy through without him.